Michael Burry, the hedge fund manager famed for predicting the 2008 housing crash, has struck again with a massive bet against AI stocks that’s already paying off. His bold move is sending ripples through Wall Street.
Burry’s $1 billion bearish bet against top AI-linked stocks like Palantir and Nvidia, revealed in early November, has coincided with sharp declines of up to 33% in those stocks, fueling fears of a broader market correction impacting Americans’ 401(k)s.
In early November, Burry placed a staggering $1 billion wager against Wall Street’s AI darlings. Filings on Nov. 4 revealed put options worth $900 million against Palantir and $187 million against Nvidia. These instruments gain value as the underlying stocks decline.
According to the Daily Mail, the market reaction was swift and brutal. Within three trading days, Palantir dropped 15%, while Nvidia fell 12%.
Since then, the declines have deepened, based on analysis of market data. Palantir shares slid from a Nov. 3 close of $207 to $138 by Feb. 4, a 33% drop erasing $161 billion in market value. NVIDIA, meanwhile, fell 15% over the same period, from $206.88 to $175.52.
These losses are staggering for companies that had soared in the prior year. Palantir surged over 250%, and Nvidia climbed 180% in the 12 months leading to November, leaving little margin for error in their lofty valuations.
Combined, Palantir and Nvidia have shed $1 trillion in market value since Burry’s bet surfaced. NVIDIA’s market cap, which briefly topped $5 trillion, now stands at $4.25 trillion. Palantir’s recent volatility adds to the concern. Despite blockbuster earnings earlier this week sending shares up 7% on Tuesday, they plunged 13% by Feb. 4, falling below pre-earnings levels.
Market watchers are sounding alarms over these drops. They warn that the slide in AI stocks could signal a broader correction, potentially hitting major indexes like the S&P 500 and Nasdaq tied to retirement accounts.
The sharp declines have turned a trade once ridiculed into a potential winner. Palantir CEO Alex Karp called short sellers “bat crazy” during a Nov. 4 CNBC appearance. Now, Burry’s bet seems prescient.
Burry, who founded Scion Asset Management, built his legend by foreseeing the 2008 subprime mortgage collapse, a story immortalized in "The Big Short." His high-conviction bets against hyped industries—like AI now—echo that era.
Critics and supporters alike are debating Burry’s latest move. While some see speculative excess in AI valuations, others argue the sector’s long-term potential remains intact. The question is whether Wall Street will again have to concede that Burry was right.
Burry isn’t bearish across the board, adding another layer to his strategy. In a Substack post two weeks ago, he wrote, “I own GME. I have been buying recently,” sparking an 8% single-day rally in GameStop shares.
For everyday investors, the AI stock slide is a wake-up call. Retirement accounts tied to major indexes could feel the pain if this correction spreads. It’s a reminder to diversify and not chase hype-driven sectors at peak valuations.
So, what’s the play here? Reassess exposure to overvalued tech stocks and consider hedging strategies. Burry’s track record suggests paying attention when froth builds—whether in housing or AI. Stay frugal, invest with discipline, and don’t let Wall Street’s latest shiny object blind you to fundamentals.