Burry's AI Puts: Genius or Just a Hunch?
Michael Burry, the man who made a killing betting against the housing market in 2008, is making headlines again. This time, it's not subprime mortgages but artificial intelligence that's caught his attention. Specifically, reports indicate he's placed put options (bets that the stock price will fall) on Nvidia and Palantir.
Now, before everyone starts shouting "The Big Short 2.0!", let's take a deep breath and look at the data we don't have. The filings only show the existence of put options. We don't know the strike price (the price at which Burry profits if the stock falls below), the expiration date, or the size of the positions relative to his overall portfolio. These are crucial details. Without them, we're essentially flying blind, trying to interpret tea leaves.
Palantir, in particular, is an interesting target. While it has a strong government client base, its commercial adoption has been... uneven. Revenue growth has been decent, about 24% last quarter, but profitability remains a question mark. The company touts its AI Platform (AIP), claiming it can revolutionize business decision-making. But the evidence so far is largely anecdotal (and filtered through Palantir's marketing department). Are companies truly seeing a massive ROI on AIP, or is it just another expensive piece of software that requires armies of consultants to implement?
Nvidia is a different beast altogether. They are the undisputed king of AI chips. Their GPUs are essential for training large language models, and their stock price reflects this dominance. So why would Burry bet against them? Perhaps he believes the market has become overly optimistic, pricing in years of future growth that may not materialize. Or maybe he's anticipating increased competition from AMD and Intel, who are both investing heavily in AI chip development.
I've looked at hundreds of these filings, and this particular situation is reminiscent of the dot-com bubble. Companies with vaguely defined "internet strategies" saw their valuations skyrocket, only to come crashing back down to earth when the hype faded. Is AI the new internet? Maybe. But history doesn't repeat itself, it rhymes. And those rhymes often sound like "irrational exuberance" followed by "market correction."
Diving Deeper: The Data We Need
The real question is: what data is Burry looking at that we aren't? He's known for his deep dives into financial statements, uncovering hidden risks and vulnerabilities that others miss. Is he seeing signs of slowing demand for AI chips? Are Palantir's customer contracts less secure than they appear? Or is this simply a tactical bet, a way to hedge against potential market volatility?
Here's where my analysis suggests a potential methodological critique: Are we too reliant on lagging indicators? Financial statements, by their nature, reflect past performance. Burry's edge often comes from anticipating future trends before they show up in the numbers. This requires a more qualitative approach, talking to industry insiders, tracking supply chain disruptions, and analyzing patent filings (which can provide clues about future technological developments).
And this is the part of the report that I find genuinely puzzling. Burry’s fame rests on identifying systemic risks – vulnerabilities that threaten the entire market. Betting against individual companies, even large ones like Nvidia and Palantir, seems like a departure from his usual strategy. Unless, of course, he believes that a slowdown in AI spending could trigger a broader market downturn. Initial reports of Burry's put options on Nvidia and Palantir can be found at Michael Burry’s ‘Big Short’ instincts target AI trade with puts on Nvidia, Palantir.
Is the AI Bubble About to Burst?
Burry's bets are a contrarian signal, a warning shot across the bow. But whether they're a sign of impending doom or simply a well-calculated gamble remains to be seen. One thing's for sure: the AI market is frothy, valuations are high, and expectations are even higher. And in that kind of environment, even the smallest pinprick can burst a bubble.