Michael Burry's Bearish Bets: Nvidia and Palantir Under Scrutiny

Big Short Burry Bets Against AI Hype: Genius Move or Doomed Gamble?

Michael Burry, the investor who made a fortune betting against the 2008 housing bubble, is at it again. This time, he's placed massive bets against two of the hottest names in tech: Nvidia and Palantir. According to a recent regulatory filing, Burry's Scion Asset Management has acquired put options equivalent to 1 million shares of Nvidia and 5 million shares of Palantir. That's roughly $186.6 million and $912 million respectively riding on the expectation that these stocks will fall.

The Bear Case: AI Overblown?

Nvidia, the AI chip giant, has seen its stock price skyrocket. It briefly hit a $5 trillion market cap before settling slightly lower. Palantir, the data analytics firm, has also enjoyed a surge, fueled by the AI frenzy and increased defense spending. Both companies have seen impressive gains this year alone – Nvidia up 54%, Palantir a staggering 174%.

Burry's bet suggests he believes this growth is unsustainable. He even broke his silence on X to hint at a bubble, posting, "Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play." A cryptic message, sure, but the implication is clear: he sees parallels between the current AI hype and past market excesses. He posted charts comparing cloud segment growth to the dot com bubble, and AI capex to the tech spending of 1999-2000.

Is he right? It's tempting to dismiss Burry as a perma-bear, but his track record demands attention. The core of his argument seems to be that current valuations are disconnected from underlying fundamentals. While both Nvidia and Palantir are growing, the question is whether that growth justifies their current stock prices. Are investors pricing in future growth that may never materialize? And this is the part of the report that I find genuinely puzzling - so much hype on AI, but is the actual market ready for it?

The Bull Case: Just Getting Started

Of course, there's a strong counter-argument. Nvidia is the undisputed leader in AI chips, and demand is only expected to increase. Palantir's data analytics platform is increasingly vital for both commercial and government clients. Some would argue that these companies are not just riding a wave of hype, but are fundamentally changing the landscape of their respective industries.

The filing also reveals other moves by Scion. Burry took call options on Halliburton and Pfizer, signaling a potential shift towards more traditional sectors. He also held positions in Lululemon, Bruker, Molina Healthcare, and Sallie Mae. Scion held eight positions as of the end of September, down from 15 at the end of June, which suggests a more concentrated portfolio.

It’s worth noting that Scion’s holdings may have changed since the end of September. These filings are backward-looking, offering a snapshot of a specific moment in time. And, Scion is a relatively small fund, managing about $155 million as of March. While Burry's reputation carries weight, his moves don't necessarily dictate market trends.

Is Burry Bluffing, or Spot On?

Burry's bet is a high-stakes gamble. If he's right, Nvidia and Palantir's stock prices could plummet, netting Scion a massive profit. If he's wrong, the losses could be substantial. The market seems to be betting against him for now, as both stocks initially dipped slightly on the news before recovering. According to Business Insider, it was revealed that " 'Big Short' Michael Burry bet against Palantir and Nvidia".

The question is, can Burry repeat his "Big Short" success? Or is he misreading the current market dynamics? Only time will tell, but one thing is certain: his moves will be closely watched by investors around the world.

A Contrarian Indicator?

Burry's bet is intriguing, but it's not a crystal ball. While his past success is undeniable, markets change, and even the best investors can be wrong. The question for investors isn't whether to blindly follow Burry, but to analyze his reasoning and draw their own conclusions. Has AI been overhyped? Are Nvidia and Palantir overvalued? These are the questions that investors need to answer for themselves.