Michael Burry's Nvidia and Palantir Bets: What's He Seeing?

Burry's Bearish Bets: AI's Reality Check?

Michael Burry, the investor famed for predicting the 2008 financial crisis, has made some notable moves in his portfolio, as revealed in a recent regulatory filing. Scion Asset Management, Burry's fund, purchased five million put options on Palantir Technologies (PLTR) and one million put options on NVIDIA Corp (NVDA). These are not small bets; the Palantir puts represent a market value of $912.1 million, while the Nvidia puts are worth $186.58 million, according to Whale Wisdom. Michael Burry Is Super-Bearish On Palantir — With 5 Million Puts - Palantir Technologies (NASDAQ:PLTR)

These moves are particularly interesting given the current market narrative surrounding artificial intelligence. Palantir, a data analytics company, and Nvidia, a chipmaker whose GPUs are essential for AI development, are both seen as major beneficiaries of the AI boom. So, what's Burry seeing that the market isn't?

The Cloud Growth Slowdown

Burry himself hinted at his rationale with a post on X (formerly Twitter), referencing an AI bubble and Star Wars. "These aren't the charts you are looking for. You can go about your business," he quipped, posting charts comparing cloud segment growth for Alphabet, Amazon, and Microsoft from 2018-2022 with the present period. He also highlighted the web of AI deals between Nvidia, OpenAI, Oracle, and other big tech companies, along with data showing AI capex matching the tech spending of the 1999-2000 tech bubble.

The cloud growth chart is particularly telling. While cloud computing is still growing, the rate of expansion has demonstrably slowed. This raises a key question: is the current AI hype cycle built on a foundation of unsustainable growth, or is it a genuine paradigm shift that will drive long-term value creation? The market seems to be pricing in the latter, but Burry is clearly betting on the former.

It's worth noting (parenthetical clarification) that Burry's fund also made other significant moves. Scion added 50,000 shares of Lululemon Athletica, 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, the firm closed its positions in Estee Lauder Companies, Regeneron Pharmaceuticals, MercadoLibre, and UnitedHealth Group.

Decoding the Moves

So, what's the story here? Is Burry simply rebalancing his portfolio, or is there a deeper strategic rationale behind these moves? The addition of healthcare stocks (Molina, Pfizer), combined with the bearish bets on AI darlings, suggests a shift towards more defensive, value-oriented investments. The bet on Halliburton, an oilfield services company, hints at a potential contrarian play on the energy sector.

I've looked at hundreds of these filings, and this particular combination of moves is unusual. It's not just about taking profits on high-flying tech stocks; it's a deliberate repositioning towards sectors that are less exposed to the risks of a potential economic slowdown or a bursting tech bubble. The size of the Palantir puts--almost a billion dollars--signals a high degree of conviction.

One could argue that Palantir's reliance on government contracts makes it relatively insulated from broader economic trends. However, even government spending is subject to budgetary constraints. If the AI boom fails to deliver on its promises, will Palantir's growth continue to justify its premium valuation? Similarly, Nvidia's dominance in the AI chip market is undeniable, but competition is intensifying. AMD and other players are vying for a piece of the pie, and the risk of technological disruption is ever-present. The AI capex matching the tech spending of the 1999-2000 tech bubble is hard to ignore.

The AI Hype: A Mirage?

Burry's bet against AI isn't just a financial calculation; it's a commentary on the current state of the market. It's a reminder that even the most transformative technologies are subject to the laws of economics. Hype can drive valuations in the short term, but ultimately, fundamentals matter.

So, what's the real risk here? Is it that AI won't live up to its potential? Or is it that the market has already priced in unrealistic expectations? The web of AI deals between Nvidia, OpenAI, Oracle, and other big tech companies is extensive. It could be a sign of innovation and collaboration, or it could be a sign of desperation.

Questionable Valuations Ahead?

Burry's moves serve as a valuable counterpoint to the prevailing optimism. Whether he's right or wrong remains to be seen, but his track record suggests that his analysis is worth paying attention to.

The Market's Euphoria Needs a Dose of Reality