Michael Burry says the AI bubble might pop sooner than he thought.
The investor of “The Big Short” fame said in a Substack post on Monday that he’s “moving timelines up,” chiefly because he expects “the bubble in AI may burst sooner than later.”
Burry said he’s “more confident than ever before” that his pessimistic thesis will “play out over the next year.” He previously said his “base case” was 2028.
The shorter timeframe led Burry to want “more leverage in my short positions,” so he covered his outright shorts and replaced them with bearish put options, he said.
Those contracts give him the right, but not the obligation, to sell a stock at a fixed strike price before a set expiry date. If the stock falls below that price prior to that date, he can exercise his puts and sell the stock at a premium to the market price, or simply sell the puts for a profit.
Burry said he switched out his outright shorts for puts on Nvidia, Palantir, Micron, Nebius, Oracle, Caterpillar, the iShares Semiconductor ETF, and the Nasdaq 100, all expiring between June and December next year.
He’s also closed his CoreWeave short with plans to buy puts once they’re attractively priced, and has also bought fresh puts on MetLife, he said.
Burry shared the key details for each position. For example, he said that he bought Nvidia puts that expire next September and are struck in the mid-$100s, or less than half the AI chipmaker’s $229 stock price at Monday’s close.
Moreover, he said that his Nasdaq 100 are struck in the $24,000s and expire next September, signaling he expects the tech-heavy index to slump by close to 20% within the next year, from around $30,300 today.
Burry said AI companies are borrowing and spending an unsustainable amount to build data centers to power the technology, setting themselves up for disaster.
“If the spending stops or slows, it all comes apart,” he wrote, adding that the cash being used is “increasingly debt, with strings attached.”
Burry noted that rising interest rates could turn the screw on AI companies as well, given that private equity, private credit, and their insurers are financing so much of the infrastructure buildout.
“Higher rates stress every part of that chain,” he said.
Burry sees trouble brewing
“There are signs of strain at each of the big hyperscalers,” Burry said in another recent post, adding that AI giants’ public comments and filings “provide clues as to how stressed each one really is.”
“I think there are many ways these companies are starting to fray,” he wrote.
Burry, who pivoted from running a hedge fund to writing about his personal investments on Substack last fall, shot to fame after his massive, contrarian wager against the mid-2000s US housing bubble was chronicled in the book and movie “The Big Short.”
He has repeatedly warned that the immense buzz around AI, which has propelled the stock market to all-time highs this year, won’t last.
Burry has said that AI giants are masking slowing growth, overinvesting in chips and data centers, using accounting tricks to inflate their short-term earnings, harming shareholders by issuing too much stock to compensate their employees, and signing circular-financing deals to fuel hype and keep the party going.
But stocks have continued to shrug off not only concerns about excessive optimism around AI, but also other headwinds such as foreign conflicts, rising interest rates, soaring bond yields, and a resurgent inflation threat.
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