Title: Michael Burry's Bearish Bets: Genius or Gambling?
Decoding Burry's Big Moves
Michael Burry, the man who famously predicted the 2008 housing crisis, is making headlines again. Recent filings reveal a significant shift in his portfolio, with Scion Asset Management taking massive bearish positions against Palantir (PLTR) and Nvidia (NVDA). We're talking about five million put options on Palantir and one million on Nvidia. The market value of these bets? A cool $912.1 million and $186.58 million, respectively, according to Whale Wisdom. As reported by Benzinga, Michael Burry Is Super-Bearish On Palantir — With 5 Million Puts - Palantir Technologies (NASDAQ:PLTR).
Now, before everyone starts panicking and dumping their tech stocks, let's dissect this. Burry isn't exactly known for following the herd. He's a contrarian investor, meaning he bets against popular sentiment. Palantir, for instance, is trading at all-time highs. Nvidia? It's been riding the AI wave like a surfer dude on a tsunami. So, Burry's move is inherently a bet that these companies are overvalued and due for a correction. But is he right?
His recent post on X (formerly Twitter) referencing an AI bubble and Star Wars ("These aren't the charts you are looking for…") adds another layer to the puzzle. He posted charts comparing cloud segment growth for Alphabet, Amazon, and Microsoft from 2018-2022 with the present day. He also shared a chart illustrating the web of AI deals between Nvidia, OpenAI, Oracle, and other tech giants, alongside a third chart showing AI capex mirroring the tech spending of the 1999-2000 tech bubble.
The implication is clear: Burry believes the current AI frenzy is unsustainable and mirrors the dot-com bubble. He sees inflated valuations and excessive investment, setting the stage for a potential crash. But here's where it gets interesting, and where I find the situation a bit more nuanced than just a simple "bubble" call.
The Devil's in the Data
Burry's thesis hinges on the idea that AI spending is outpacing actual revenue generation. While it's true that many AI companies are currently operating at a loss, the long-term potential is undeniable. The question is not if AI will generate significant returns, but when. And that's where the timing of Burry's bets becomes crucial. Are we talking about a correction in the next few months, or a more protracted downturn over the next few years?
Moreover, putting so much weight on the cloud growth comparisons from 2018-2022 feels a little too simplistic. The entire market landscape has shifted since then. The pandemic accelerated digital transformation, and AI is now a major driving force. Comparing those periods directly feels like comparing apples to, well, slightly different apples.
It's also worth noting that Burry isn't just betting against tech. His firm also added 50,000 shares of Lululemon Athletica, opened a 125,000 share position in Molina Healthcare, and a 480,000 share position in SLM Corp. He also purchased 2.5 million calls on Halliburton and six million calls on Pfizer. These moves suggest a more diversified strategy, perhaps hedging against broader economic uncertainty. He closed positions in Estee Lauder, Regeneron, MercadoLibre, and UnitedHealth Group.
Let's not forget that put options are a leveraged bet. A relatively small investment can yield significant returns if Burry's predictions come true. But they can also result in substantial losses if the market moves against him. To be precise, a put option gives the buyer the right, but not the obligation, to sell a stock at a specific price before a certain date. If the stock price stays above that strike price, the option expires worthless.
I've looked at dozens of these 13F filings, and the sheer size of the Palantir position is what really jumps out at me. It's a bold statement, considering the company's growth trajectory and its perceived importance in the AI and data analytics space. But bold statements are kind of Burry's thing, aren't they? As seen on X, Michael Burry Allocates 80% of Portfolio to Puts on Nvidi... - X.
Burry's Playing a Risky Game
So, is Michael Burry a genius or a gambler? The answer, as always, is probably somewhere in between. His bearish bets are undoubtedly risky, but they're based on a data-driven analysis of market trends and company valuations. Whether those bets will pay off remains to be seen. But one thing is certain: Burry's moves are always worth watching, even if only to remind us that the market is rarely as predictable as we think it is.
So, What's the Real Story?
Ultimately, Burry's bet is a calculated gamble based on his interpretation of the data. It’s not a guarantee of a crash, but a high-stakes wager that the market’s exuberance has outstripped reality. Only time will tell if he's right this time, but one thing's for sure: it'll be one hell of a show to watch.