The Contrarian's Warning: Is the AI and China Tech Rally on Thin Ice?

Edwin FosterFriday, May 16, 2025 1:26 pm ET
13min read

In a world intoxicated by the promise of artificial intelligence and the relentless rise of Chinese tech giants, one voice cuts through the euphoria with stark pragmatism: Michael Burry. The contrarian investor behind the legendary 2008 subprime mortgage short has once again positioned himself against the market’s consensus, this time targeting

NVIDIA
(NVDA) and China’s tech titans like Alibaba (BABA), Baidu (BIDU), and JD.com (JD). His recent bearish bets, revealed in Q1 2025 regulatory filings, signal a seismic shift in sentiment—one that investors would be wise to heed.

The AI Boom and NVIDIA’s Overvaluation

Burry’s 900,000 put contracts on NVIDIA, worth $98 million, mark his largest single bearish position. This is no random move. NVIDIA, the undisputed leader in AI chips, has seen its stock climb to dizzying heights on hype about its role in the next tech revolution. Yet Burry’s skepticism hinges on a simple truth: much of this growth is already priced in.

While AI adoption is real, the market has extrapolated it into a perpetual growth story. NVIDIA’s price-to-sales ratio now exceeds its five-year average by 40%, a valuation gap that Burry—ever the fundamentalist—is betting will narrow. Add to this the risk of competition (e.g., AMD’s AI chip advancements) and supply-demand imbalances in China’s semiconductor sector, and the case for a correction becomes compelling.

China’s Tech Crossroads: Overvaluation Meets Headwinds

Burry’s pivot from long to short on Chinese tech stocks is equally telling. He sold all his holdings in Alibaba, Baidu, JD.com, and Pinduoduo, replacing them with over $75 million in put options. This reversal reflects three existential threats:

  1. Economic Slowdown: China’s GDP growth has slumped to 4.5% in 2024, with consumer spending lagging. Alibaba’s Q4 revenue miss—a 7.5% stock plunge—epitomizes the fragility of its domestic demand-driven model.
  2. Regulatory Overhang: Beijing’s crackdown on tech monopolies, data privacy, and foreign capital flows continues to weigh on sentiment.
  3. Valuation Stretch: The MSCI China Tech ETF (MCHI) trades at 22x forward P/E, above its historical average of 18x, despite slowing earnings growth.

U.S.-China Trade Tensions: The Geopolitical Wildcard

Burry’s bets are not just about valuations—they’re about geopolitics. U.S. tariffs on Chinese imports, though temporarily suspended, remain a Sword of Damocles. A full reinstatement could disrupt supply chains, hit margins, and trigger a broader sell-off in Chinese equities.

The irony is stark: as Wall Street cheers the “reopening of China,” Burry sees a system buckling under debt, demographic decline, and strategic competition.

Burry’s Contrarian Edge: History Repeating

Burry’s track record demands respect. In 2008, he famously shorted subprime mortgage CDOs when complacency ruled. Today, his portfolio now comprises nearly 75% bearish put options, a stark departure from Wall Street’s bullish euphoria.

His lone long position, Estée Lauder (EL)—doubled to 200,000 shares—highlights his focus on defensive, cash-generative businesses. This is no coincidence: EL’s global beauty brand resilience contrasts sharply with the speculative, capital-heavy bets in AI and Chinese tech.

Investment Implications: Act Now or Pay Later

Burry’s bets are a call to action:

  1. Short the Overhyped: Consider shorting or using put options on NVDA and Chinese tech stocks. Their valuations are stretched, and macro risks are mounting.
  2. Hedge Exposure: If you own these names, pair positions with protective puts to limit downside.
  3. Go Defensive: Allocate to stable, dividend-paying stocks like EL or other consumer staples.

The Nasdaq’s April 2025 dip into bear market territory—a 20% drop from its peak—offers a preview of what could unfold. Burry’s contrarian lens suggests this is just the start.

Final Analysis

In an era of irrational exuberance, Burry’s skepticism is a lifeline. The AI boom and China’s tech rally may yet deliver, but the risks of a sharp correction are undeniable. Investors ignoring his warning do so at their peril. As history shows, the contrarian’s voice often carries the weight of truth—especially when it comes from someone who’s been right before.

Act now, or risk being swept aside when the tide turns.