Michael Burry's Exit from Scion Asset Management and Implications for AI and Tech Valuations

Michael Burry, the legendary contrarian investor who made his name predicting the 2008 financial crisis, has once again turned the market upside down. In Q1 2025, Burry executed a dramatic shift at his firm, Scion Asset Management, exiting nearly all long positions and deploying $1.1 billion in put options against two of the AI sector's most hyped names: Nvidia (NVDA) and Palantir (PLTR). This move wasn't just a bet-it was a sledgehammer to the prevailing narrative of AI-driven tech euphoria. Let's break down what this means for investors and why the sector's sky-high valuations might be in for a reckoning.

Burry's Strategic Shift: From Long to Short

Burry's Q1 2025 portfolio reshuffle was nothing short of seismic. He liquidated long positions in Chinese tech giants like Alibaba and JD.com while doubling down on Estée Lauder, a rare holdout in his portfolio. But the most jaw-dropping move was his bearish assault on AI. Scion purchased $187.6 million in Nvidia puts and a staggering $912 million in Palantir puts, representing 1 million and 5 million contracts, respectively. These positions weren't just large-they were a clear signal that Burry sees a disconnect between AI stocks' valuations and their fundamentals.

The market reacted instantly. The Nasdaq Composite dropped 3% the day after Scion's positions were disclosed, and Palantir's stock cratered 8% post-earnings despite beating revenue expectations. Burry's actions forced investors to confront a hard truth: AI's "hype premium" might be unwinding.

The Valuation Disconnect: AI's "Hype Premium"

Let's talk numbers. Palantir's forward P/E ratio exceeds 280 times earnings, while Nvidia's is a relatively modest 20 times according to recent financial data. Yet both stocks have surged on the back of AI optimism. Burry's puts suggest he's betting that this optimism is misplaced.

Consider the math: Palantir's revenue grew 62.8% year-over-year in Q3 2025, but its valuation implies investors expect sustained exponential growth-a near-impossible bar for any company according to financial analysis. Meanwhile, Nvidia's dominance in AI chips has been a tailwind, but its 20x P/E still demands consistent earnings growth to justify its price. If AI adoption slows or competition intensifies, these valuations could implode.

Broader Sector Risks: A House of Cards?

Burry's bets aren't isolated. Insider selling of $9.3 billion in combined Nvidia and Palantir shares over the past two years has raised eyebrows. While insiders often sell for tax or diversification reasons, the timing-amid Burry's bearish bets-adds to the unease.

The AI sector's overvaluation isn't just a niche concern. C3.ai, another AI darling, is now exploring a potential sale after a 19% revenue decline and a $116.8 million net loss according to company disclosures. Its stock has rallied 3.8% on speculation, but this volatility underscores the sector's fragility. If one AI company stumbles, the entire sector could face a liquidity crisis.

What This Means for Investors

Burry's playbook has always been to shorten up when the market gets ahead of itself. His puts on Nvidia and Palantir are a warning: Don't confuse momentum with fundamentals. For long-term investors, this is a reminder to focus on earnings, not headlines. For traders, it's a signal to hedge against a potential sector-wide correction.

But here's the twist: Burry's bets could backfire. If AI adoption accelerates-say, with breakthroughs in agentic AI or enterprise adoption-Palantir and Nvidia could defy the bearish crowd. The key is to balance skepticism with open-mindedness.

Conclusion: A Contrarian's Contrarian

Michael Burry's exit from Scion and his bearish bets on AI are a masterclass in contrarian investing. They force us to ask: Are we in a bubble, or is this the next industrial revolution? The answer will define the next decade of tech investing. For now, the market is caught between two truths: AI's transformative potential and the gravity of overvaluation.

As always, the best strategy is to stay informed, stay diversified, and keep an eye on the short-sellers-because when Burry bets against the crowd, it's worth listening.