The Big Short! Michael Burry Shorting Nvidia and Palantir in the Shadow of an AI Bubble

In the high-stakes arena of Wall Street, few names evoke the thrill of contrarian foresight like Michael Burry.

The investor immortalized in "The Big Short" for his prescient wager against the U.S. housing market in 2008 has once again positioned himself as the skeptic in a frothy market. This time, his target is the artificial intelligence boom, with Scion Asset Management revealing substantial put options on Nvidia Corp. and Palantir Technologies Inc.—bets that stand to profit if these tech darlings falter.

The disclosure, buried in regulatory filings for the quarter ended September 30, comes amid swirling concerns that the AI hype may be inflating a dangerous bubble, propped up by interlocking deals and unproven profitability.

Burry's move isn't just a quiet hedge fund adjustment; it's a bold declaration in an era where AI stocks have propelled markets to dizzying heights. Nvidia, the chipmaker at the heart of the AI revolution, briefly touched a $5 trillion valuation last week, while Palantir's shares have surged 157% year-to-date. Yet Burry sees cracks in the facade, echoing his warnings from the subprime crisis. As shares of both companies dipped in response—Palantir plummeting over 10% and Nvidia sliding as much as 2.9%—the filings ignited debate about whether the AI gold rush is sustainable or poised for a reckoning.

The Disclosure: Bearish Bets Amid Bullish Calls

Scion's 13F filings, released on Monday, paint a picture of calculated pessimism. The fund acquired put options on Nvidia and Palantir, with the notional value exceeding $1 billion—a significant stake for a manager known for his concentrated positions. These puts grant the right to sell shares at a predetermined price, profiting from declines. To balance the portfolio, Scion also disclosed call options on Halliburton Co. and Pfizer Inc., which could benefit from upward moves in those stocks.

Caveats abound in interpreting these filings. They only reveal long positions, meaning any short legs of spread trades or outright shorts in underlying stocks remain hidden. Off-exchange swaps or other derivatives wouldn't appear either. This opacity is standard, but it underscores the nuance in Burry's strategy: these puts might hedge unreported longs, though unlike Scion's first-quarter filing—which explicitly noted such possibilities—the latest one omits that disclaimer. Investors are left to speculate on the full picture, but the direction is clear: Burry is bracing for turbulence in AI leaders.

This isn't Burry's maiden voyage against Nvidia. In the first quarter, Scion liquidated nearly its entire listed equity portfolio and loaded up on puts against the chip giant, alongside bets on U.S.-listed Chinese tech firms. That move preceded escalating trade tensions, proving timely. Now, with AI valuations soaring, Burry appears to be doubling down, viewing Nvidia not as an untouchable innovator but as a potential casualty of overhyped expectations.

Cryptic Warnings: Social Media Signals from the Seer

Burry has never been one for verbose press releases; instead, he communicates through enigmatic posts on X, the platform formerly known as Twitter. Just days before the filings, he shared an image of his character from "The Big Short," captioned with a stark advisory: "Sometimes, we see bubbles." He elaborated in follow-ups: "Sometimes, there is something to do about it. Sometimes, the only winning move is not to play." These missives, laced with cinematic flair, hark back to his pre-2008 alerts on housing excesses.

On Monday evening, Burry amplified his message with a trio of graphics. One, lifted from a Bloomberg News story, illustrated circular financing arrangements involving Nvidia, OpenAI, and other AI players—deals where companies buy each other's products in a self-reinforcing loop, potentially masking underlying weaknesses. Another chart drew parallels between today's tech capital expenditure surge and the dot-com bubble's manic spending, a historical echo that Burry knows all too well can precede a crash.

These posts aren't mere musings; they're a clarion call to retail investors swept up in the AI frenzy. Burry's track record lends them weight, transforming what might seem like online riddles into market-moving insights. In a landscape dominated by bullish narratives from Silicon Valley, his contrarian voice cuts through like a warning siren.

Market Backlash: Shares Tumble and CEOs Push Back

The timing couldn't have been more dramatic. Palantir, fresh off raising its annual revenue outlook, reported earnings that beat expectations—yet its stock cratered as much as 16% on Tuesday. Analysts pinned the blame on lofty valuations and scant visibility into 2026 guidance. "Their results were good, but markets were disappointed at the lack of company visibility for the whole of 2026," noted Deutsche Bank's Jim Reid in an investor memo. The Nasdaq Composite opened down 1.5%, with the S&P 500 shedding about 1%, as tech heavyweights like Oracle, Microsoft, and Apple joined the slide.

Nvidia, up 46% year-to-date, wasn't spared, dipping over 2% amid the broader selloff. The company's ascent has been meteoric, fueled by demand for its GPUs in AI training, but skeptics question if the growth justifies the multiples. Burry's bet amplifies those doubts, especially as investor unease mounts over "circular deals" that could artificially inflate revenues.

Palantir's CEO, Alex Karp, didn't mince words in rebutting the short. During a CNBC "Squawk Box" interview on Tuesday, he labeled the idea of betting against his company and Nvidia as "bats–t crazy." Karp emphasized their roles in advancing AI: "The two companies he’s shorting are the ones making all the money, which is super weird. He’s actually putting a short on AI... It was us and Nvidia." He defended shorting in principle but argued against targeting firms performing "noble tasks," positioning Palantir's data analytics and Nvidia's chips as essential to progress.

Karp's defiance highlights the cultural divide: optimists see AI as transformative, while bears like Burry view it as overleveraged hype. The CEO's comments, delivered with characteristic bluntness, underscore how personal these market battles can become.

The Swelling AI Bubble: Echoes of Past Manias

Burry's wagers tap into a broader undercurrent of anxiety rippling through finance. For months, concerns have escalated about the AI sector's sustainability. Trillions in capital have poured into infrastructure—data centers, chips, software—yet profitability remains elusive for many players. The Bloomberg graphic Burry highlighted depicts how much of the boom relies on symbiotic relationships between a handful of giants: Nvidia sells chips to OpenAI, which in turn partners with others who buy more Nvidia hardware. It's efficient until it isn't, reminiscent of the dot-com era's incestuous investments that unraveled spectacularly.

Tech capital expenditures are skyrocketing, mirroring patterns from the late 1990s when telecom and internet firms overbuilt in a race to nowhere. Burry's shared chart drives this home, plotting similar trajectories that ended in busts. Add in recent warnings from banking titans, and the picture darkens. At the Global Financial Leaders’ Investment Summit in Hong Kong, Goldman Sachs CEO David Solomon predicted a 10% to 20% equity drawdown in the next 12 to 24 months. Morgan Stanley's Ted Pick concurred, welcoming periodic 10% to 15% corrections as healthy purges, absent a macroeconomic cliff.

These executives aren't alarmists; they're stewards of vast portfolios, attuned to cycles. Their comments, following Burry's disclosures, fueled Tuesday's market jitters, suggesting a consensus that valuations have outpaced fundamentals. AI's promise is undeniable—revolutionizing industries from healthcare to energy—but the rush has bred excess, with startups and incumbents alike chasing buzzwords over balance sheets.

Historical Parallels: Burry's Playbook Revisited

Burry's strategy draws from a well-worn playbook. His 2008 triumph wasn't luck; it was rigorous analysis spotting mispriced risks in mortgage-backed securities. Similarly, his first-quarter Nvidia put preceded a volatile period for tech amid U.S.-China frictions. By liquidating equities then, Scion preserved capital for opportunistic bets, a tactic that paid off as markets rebounded unevenly.

Today's context differs—AI isn't subprime housing—but the psychology aligns: euphoria blinding investors to vulnerabilities. Burry's absence of the hedging disclaimer in the latest filing hints at purer bearishness, unmitigated by longs. Whether outright short or part of a complex trade, it's a vote of no confidence in the sector's trajectory.

Implications for Investors: Navigating the Froth

As markets digest Burry's moves, the question looms: Is this the prelude to a pop? Optimists point to real AI adoption—Palantir's raised guidance, Nvidia's monopoly on high-end chips—as evidence of enduring value. Bears counter with the lack of broad profitability and potential regulatory scrutiny on concentrated power.

For retail investors, Burry's warnings serve as a sobering reminder: in bubbles, timing is everything. His cryptic posts urge caution, perhaps advising to sit out the mania. Institutional players, meanwhile, may reassess portfolios, eyeing corrections as buying opportunities or exits.

Burry himself remains enigmatic, declining comment through Scion. Nvidia echoed the silence. Yet his actions speak volumes, challenging the narrative that AI is infallible. In a market intoxicated by innovation, Burry's sober bet could prove prophetic—or a rare misstep. Either way, it injects vital skepticism into the discourse, reminding us that even the brightest booms cast shadows.