In brief
- Michael Burry is betting $1.1 billion against Nvidia and Palantir, warning that AI stocks are in bubble territory.
- His fund holds massive put options, representing 80% of Scion’s portfolio as of September 30.
- Palantir’s CEO fired back, calling the short “batshit crazy” and dismissing Burry’s logic.
Michael Burry, the investor (of “The Big Short” fame) who correctly predicted the 2008 housing crisis, disclosed a $1.1 billion short position against Nvidia and Palantir Technologies through put options on Monday, triggering an immediate sell-off across tech markets this week.
Palantir dropped as much as 16% on Tuesday before closing down approximately 8%. The decline came despite the company beating third-quarter earnings estimates and raising its full-year guidance. Nvidia fell between 2% and 4% during the same trading session, while the Nasdaq Composite recorded its largest one-day percentage drop in nearly a month at roughly 2%. Every member of the “Magnificent Seven” AI-related stocks closed lower that day.
The reaction spread beyond U.S. borders. Asian and European markets recorded sharp declines in the following days, with indices in Japan and South Korea dropping significantly as concerns over tech valuations became a global sentiment driver.
Palantir’s recovery has been sluggish compared to Nvidia’s. The data analytics company trades at a price-to-earnings ratio of approximately 254 and a price-to-sales ratio of around 115, making it particularly vulnerable to sustained bearish pressure.
The prices are currently trading below the average of the last 50 days, which is a warning sign for those who trust technical analysis.
Nvidia, which controls roughly 80% of the AI chip market, experienced a more modest and contained sell-off. The semiconductor giant’s stock was able to gain better ground today
Unlike Palantir, the stock never dropped below its 50-day benchmark, which is a point for analysts that view its current situation as being due to superior fundamentals and technological dominance.
While it may seem like the initial fears are fading away, neither stock has returned to its prior all-time highs. Burry’s disclosure injected new volatility into the AI sector, making investors more cautious about buying at valuation extremes.
Broader fallout
The short position coincided with warnings from major Wall Street executives. CEOs from Morgan Stanley and Goldman Sachs publicly cautioned investors to prepare for potential market corrections of 10% to 20% in equity markets over the next couple of years. Deutsche Bank reportedly began exploring strategies to hedge its exposure to AI-driven investments in data centers.
Burry highlighted the issue of “circular financing” in social media posts, pointing to arrangements where major tech companies invest in or lend to partners like OpenAI, Oracle, and CoreWeave, who then commit to purchasing chips and services primarily from Nvidia. Analysts at Seaport Global Securities described these deals as “emblematic of bubble-like behavior,” questioning whether the reported growth represents genuine organic demand.
Palantir CEO Alex Karp responded aggressively to Burry’s position, calling it “batshit crazy.” Karp said the short would motivate his company to produce better numbers “to make them poorer.”
In essence, investors are not simply shrugging off Burry’s warning. They treated his short as a valid piece of information—one that, combined with CEO warnings and technical valuation extremes, justified a near-term reduction of risk in the most speculative parts of the AI rally.
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Source: https://decrypt.co/347888/big-short-guy-bet-1-1-billion-against-ai-giants-markets-still-absorbing
