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Burry's Big Bets: AI Hype or Real Trouble?
Michael Burry, the investor famous for calling the 2008 housing crisis, is making some noise again. Recent filings show his Scion Asset Management has taken out significant put options against Palantir (PLTR) and Nvidia (NVDA). We're talking about a $912.1 million bet against Palantir and $186.58 million against Nvidia, according to Whale Wisdom. That's not pocket change.
Burry also posted on X, referencing an "AI bubble" with a Star Wars meme: "These aren't the charts you are looking for. You can go about your business." He included charts comparing cloud segment growth for Alphabet, Amazon, and Microsoft from 2018-2022 to the present, along with a web of AI deals between Nvidia, OpenAI, Oracle, and other tech giants. Another chart highlighted AI capex matching the tech spending of the 1999-2000 tech bubble. Michael Burry Bets Against AI Boom with Puts on Nvidia an... - X
So, what's Burry seeing that others aren't? Is this just contrarianism for the sake of it, or is there a legitimate case to be made?
Digging Into the Data
Let's start with Palantir. The company's stock is at an all-time high. But is that valuation justified? Palantir bulls point to their government contracts and expanding commercial business. However, a closer look reveals some potential cracks. While revenue growth has been consistent, profitability has been more elusive. The company has only recently started reporting consistent GAAP profitability, and a significant portion of their revenue still comes from government contracts, which can be lumpy and subject to political winds. What happens if government spending priorities shift (as they inevitably do), and Palantir's revenue stream dries up?
Nvidia is a different beast altogether. The undisputed king of AI chips, their revenue and earnings have exploded. But even kings can fall. Burry's charts comparing the current AI investment boom to the dot-com bubble are particularly interesting. He's suggesting that the market is overestimating the long-term demand for AI and that current valuations are unsustainable. It's worth remembering that many companies during the dot-com era had revolutionary ideas but ultimately failed to deliver on their promises. (Remember Pets.com? Exactly.) Are we potentially seeing a similar dynamic play out with AI, where hype is outpacing reality?
Scion's updated 13F also shows some interesting moves. They added 50,000 shares of Lululemon, opened a 125,000 share position in Molina Healthcare, and a 480,000 share position in SLM Corp. He also purchased 2.5 million calls on Halliburton and six million calls on Pfizer. Conversely, Scion closed its positions in Estee Lauder, Regeneron Pharmaceuticals, MercadoLibre, and UnitedHealth Group. This shift suggests a move towards more traditional, value-oriented stocks and a reduction in exposure to high-growth, potentially overvalued sectors.
I've looked at hundreds of these filings, and this particular combination of moves is… unusual. Most hedge funds specialize. This looks like a very broad "macro" bet.
The Contrarian's Dilemma
Burry's bet isn't just about individual companies; it's a broader statement about the market's overall exuberance. He's essentially saying that the AI narrative has become detached from underlying fundamentals. He's not alone in this view, of course. There's a growing chorus of voices warning about the potential for an AI bubble. But going against the grain can be a lonely and expensive proposition.
The big question is whether Burry's timing is right. He was famously early in his bet against subprime mortgages, enduring significant criticism and losses before ultimately being proven correct. Is he making the same mistake again? Or is he seeing something that the market is missing? The cloud growth charts he posted show deceleration, but is that deceleration temporary or a sign of a more fundamental shift?
A Race Against Time?
Burry's positions are puts, meaning they profit if the stock price declines. But options have expiration dates. If Palantir and Nvidia continue to defy gravity, Burry's bet could become very costly. The market can remain irrational longer than you can remain solvent, as the saying goes.
So, What's the Real Story?
Burry's not just betting against companies; he's betting against the prevailing narrative. Whether he's right or wrong remains to be seen, but his contrarian stance is a valuable reminder that even the most promising trends can be overhyped and that a healthy dose of skepticism is always warranted.
