Michael Burry Bets Against Nvidia & Palantir Amid AI Boom: A Bubble?

Article Highlights

• Michael Burry has made significant bearish bets on Nvidia and Palantir.
• Burry believes the AI market may be in a bubble.
• Retail investor sentiment towards Palantir remains extremely bullish.
• Burry is also betting on the rise of other companies like Halliburton and Pfizer.

“Big Short” investor Michael Burry has backed up his market bubble warnings with significant investments. Burry's Scion Asset Management revealed substantial bearish bets against Nvidia (NVDA) and Palantir Technologies (PLTR) through put options, contracts that profit when share prices decline.

The quarterly regulatory filing, released on Monday and dated September 30, showed that Scion held put options equivalent to 1 million shares of Nvidia, valued at approximately $186.6 million. Additionally, the firm held put options equivalent to 5 million shares of Palantir, valued at $91.2 million.

It is important to note that this filing reflects trading activity in the past quarter only. Scion's current holdings may differ significantly from what was disclosed.

The Backdrop: AI Mania

Burry's bets come amidst investor fervor surrounding artificial intelligence (AI). Nvidia, the AI chip giant and the world's first company to reach a $5 trillion market cap, has seen its stock soar 54% this year, extending a three-year rally fueled by surging demand for AI hardware. The stock rose 2.2% on Monday. Meanwhile, Palantir, an AI data analytics firm, has witnessed a 174% surge in its stock this year, driven by hype around AI and increased defense spending. The stock rose 3.4% on Monday but fell 4.3% in after-hours trading following its earnings report.

In the prior quarter, Scion held no positions in either company, signaling a strategic shift in Burry’s portfolio.

Burry's Warning Message

Days before this holdings filing was published, Burry broke his long, 2+ year silence on social platform X by posting a warning message. He then shared multiple charts to make his point that the tech sector is building up to a bubble.

He wrote at the time in a post, “Sometimes, we can see bubbles. Sometimes, we can act on it. But sometimes, the only winning move is not to play.”

Retail Investor Sentiment

On social platform Stocktwits, retail investor sentiment towards Nvidia has cooled from “extremely bullish” to “bullish” by Tuesday morning. The volume of discussion on the platform regarding Nvidia is down over 24 hours, but still at a “high” level. On the other hand, retail investor sentiment towards Palantir remains “extremely bullish,” and the discussion heat has climbed to an “extremely high” level.

Burry's Legacy

Burry gained notoriety for successfully predicting and profiting from the 2008 U.S. housing market collapse. His massive bets against the housing bubble were chronicled in the book and film “The Big Short.”

Scion’s disclosure comes as debates rage over whether the “AI frenzy has pushed stock market valuations into bubble territory” – with both the S&P 500 (SPX) and Nasdaq 100 (NDX) indexes having surged to all-time highs.

Other Bets

Despite his bearish outlook on Nvidia and Palantir, Burry has taken a call option strategy on oilfield services company Halliburton (HAL) and pharmaceutical giant Pfizer (PFE).

Scion also holds shares in athletic apparel maker Lululemon (LULU), scientific instrument manufacturer Bruker (BRKR), health insurer Molina Healthcare (MOH), and lender Sallie Mae (SLM).

As of the end of September, Scion held a total of eight investment positions, down from 15 at the end of June. According to the latest regulatory filing, the firm managed approximately $155 million in assets as of March.