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Outspoken analyst Michael Burry is making headlines again… and this time his target is the semiconductor industry, a linchpin of the global tech boom and major driver of the current bull market.
Michael Burry is the maverick investor who saw the 2008 financial meltdown coming when nearly everyone else was blind to the signs. His timely contrarian bets have made him a legend in the investing world, and he's one of the few fund managers known in popular culture (along with Warren Buffett and Carl Icahn) thanks to his role in Michael Lewis' book "The Big Short," and subsequent movie of the same name.
Fast forward to today, and Burry is making waves again, but this time in the world of semiconductors. It's a sector that's been sizzling hot thanks to the artificial intelligence (AI) revolution, but Burry seems to think otherwise. Let's unpack Burry's latest move and what you need to know.
Uncovering the Big SOXX Short
First things first, let's take a look at the basic facts of Burry's semiconductor trade. This is everything we know for certain: Sometime between June 30 and Sept. 30, Michael Burry opened a massive, 100,000-contract put trade against semiconductor ETF SOXX for an undisclosed amount in his private equity fund, Scion Asset Management.
Now, you may be wondering how we know about this position in the first place. Burry didn't announce this move to the press or even "tweet and delete" it like he has notoriously done for some of his other big trades.
No, for this trade, all of the facts are coming directly from Scion Asset Management's latest 13F filing — a quarterly snapshot of the fund's portfolio holdings. For us mere mortals, these filings can be a goldmine of information.
Normally, fund managers are incredibly secretive about their investing strategies, and for good reason; if too many people are all following the same strategy, it loses its edge. But each quarter, every institutional investment manager with over $100 million in assets is required to submit paperwork to the SEC listing all the equity holdings in their funds.
These filings (called "13F" forms) are like a window into the minds of top investors, giving us a peek at where the "smart money" is headed. It's akin to seeing the cards held by poker pros — you get a sense of their strategies, their bullish and bearish bets, and, importantly, their read on the market's future.
And Burry's latest 13F reveals a recent shift in strategy that is nothing short of intriguing.
What We Know (and Don't) About Burry's Big Chip Bet
Earlier this summer, Scion Asset Management's 13F showed 33 positions, including short options against the broad-based S&P 500 SPDR ETF (SPY) and the Invesco QQQ Trust (QQQ). But the latest 13F filing from Nov. 14 shows only 13 positions, no short position on the SPY or QQQ ETFs, and a major new short position in the iShares Semiconductor ETF (SOXX) - a BlackRock ETF that holds many major chipmakers, including Advanced Micro Devices, Inc. (AMD), Broadcom (AVGO), Nvidia (NVDA), and Intel (INTC).
In other words, between June 30 and Sept. 30, Burry closed most of his portfolio, completely folded his previous bearish positions against the big indexes, and loaded up on put options against SOXX. This move signals a shift in his bearish focus from broad market indices to a specific sector — semiconductors.
That said, because this is an options trade, there's a lot we don't know about Burry's SOXX trade. Let's start with this footnote from the 13F:
"...the Form 13F report excludes any short positions on the Investment Manager's books and records, which may serve to hedge the long [put option] positions."
In other words, if these puts are being used as a hedge against an equity position, we can't tell from this paperwork alone. Plus, we only know the notional value of the underlying shares involved in the put trade, and won't know until long after the fact if it's sold for a profit, exercised, or left to expire worthless.
Without knowing the strike price or expiration series, or Burry's ultimate exit plan, this apparent SOXX short is a much more difficult trade to "shadow" than, say, Warren Buffett's long-term love affair with Coke shares.
So while it's an interesting storyline, it's likely not a particularly actionable idea for retail level traders (unless they happen to have inside access to Burry himself).
Is It Time to Bet Against Semiconductor Stocks?
That said, why would Burry be betting against semiconductors specifically... and why now?
Semiconductors are an essential component of electronic devices, which means they're basically everywhere, from your car to your smartphone. Chipmakers have been one of the stars of the stock market lately, and companies like Nvidia have seen their stock prices explode, driven by the AI boom and relentless demand for more powerful chips. SOXX, the ETF Burry has set his sights on, reflects this surge, boasting a year-to-date increase of over 49%.
Burry’s apparent bet against the white-hot semiconductor industry signals a potential shift in the tide. It raises critical questions: Is the semiconductor market overvalued? Are we overlooking risks amid the tech euphoria? Burry's track record of making prescient bets that go against the grain adds weight to these concerns. If his predictions are on point again, it could mean a significant revaluation for semiconductor stocks, impacting not just individual companies but the tech sector at large.
And Burry isn't the only fund manager pulling back on chipmakers. Other big investors seem to think semiconductor companies — and specifically Nvidia — have reached a peak. For instance, Soros Fund Management recently ditched its Nvidia shares in favor of Taiwan Semiconductor Manufacturing Company (TSM), and the hedge fund Man Group also sold its massive stake in Nvidia. These varying strategies highlight the diverse views on the future of this sector.
Burry's strategy is certainly high risk, high reward. If the semiconductor market takes a hit, his puts could potentially turn into a goldmine. But if the sector continues its upward trajectory, powered by the relentless growth in AI and tech, he could miss out on substantial gains. It's a calculated risk, typical of Burry's investment style.
Michael Burry's "Big Short" bet against semiconductor stocks is a bold move that has set the investment world abuzz. Whether this bet is another display of his foresight or a misstep in a booming tech market remains to be seen.
What is clear is that Burry's strategies are always thought-provoking, often contrarian, and have the potential to significantly impact market dynamics. As we watch this play out, one thing is certain — the semiconductor industry is at a fascinating crossroads, and Burry's bet is another interesting development in this unfolding story.
On the date of publication, Meredith Margrave did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
