Hedge fund manager Michael Burry, who achieved great fame through The Big Short, is now profiting again with an opposite strategy. This time, he is betting against what he believes is the next market frenzy — the AI boom.
Recent filings made by Burry’s Scion Asset Management with the U.S. Securities and Exchange Commission have revealed that the firm has invested substantial amounts in put options on AI-related stocks, specifically approximately $912 million in Palantir Technologies and $187 million in Nvidia Corporation.
These positions suggest that Burry expects a significant decline in stock value for AI major players on the SP500 heatmap.
Burry thinks the current AI hype has gone too far and has not taken the fundamental aspects of the businesses into account. He points out that the market has given these firms a price that is hard to bear and that the investors are actually expecting modest growth in the future.
For some analysts, it is quite hard to justify the current price of Palantir and Nvidia stock. While acknowledging AI’s potential to change the game completely, Burry believes much of the sector’s investment is purely speculative — driven by impatience to get a slice of the pie rather than by future profitability that can be measured.
Business Insider reveals that Burry recognizes the same pattern as the one from two decades ago in the housing business, with another aspect of his reasoning regarding leverage and systemic weakness.
In previous bubbles, from dot-coms to cryptocurrencies, excessive borrowing and derivatives trading increased market volatility. A similar trend is already underway in the AI sector, with a similar outcome evident in AI-themed stocks, exchange-traded funds, and options markets.
Investopedia has just expressed a concern that if an “AI bubble” bursts, it will have “sizable impacts across the broader stock market” due to the heavy inclusion of AI stocks in index products.
Inevitable comparisons are made with the 2008 crisis. At that time, Burry highlighted a credit system based on flawed assumptions — that housing prices would never fall and that risk could always be restructured.
Presently, he views the AI industry as a mirror image of that situation: the growth of AI and productivity will drive the endless growth in its market value. However, there is a crucial difference between the two scenarios.
Unlike the subprime crisis, which was backed by high-risk and high-leverage investments in finance, today’s AI boom is mainly based on investors’ equity. Any slowdown would primarily hit investors and funds, but not the banking system.
Ultimately, Burry’s speculation should be viewed not as a doomsday prophecy but as a warning signal. The “Big Short” investor once again bet against the market consensus, claiming the AI tale has gone faster than the economy.
It is unclear whether history will vindicate him again. Still, his warning is worth heeding: technological breakthroughs can occur alongside financial bubbles, and when innovation is valued as limitless, caution is often the first to be overlooked.
David Prior
David Prior is the editor of Today News, responsible for the overall editorial strategy. He is an NCTJ-qualified journalist with over 20 years’ experience, and is also editor of the award-winning hyperlocal news title Altrincham Today. His LinkedIn profile is here.
