Michael Burry believes the artificial intelligence bubble may collapse earlier than he previously expected.
The investor known for ‘The Big Short’ wrote in a Monday Substack post that he is ‘moving timelines up,’ mainly because he expects the AI bubble to burst sooner rather than later.
He said he is ‘more confident than ever’ that his bearish view will unfold over the coming year, although his earlier ‘base case’ had pointed to 2028.
The compressed timeline has made Burry want greater leverage on his short exposure. To achieve that, he said he covered his outright short positions and replaced them with bearish put options.
Those options provide the right, but not the obligation, to sell a stock at a predetermined strike price before a specified expiration date. If the share price falls below that strike before expiration, he can exercise the puts and sell the stock at a price above the prevailing market level, or simply sell the puts themselves for a gain.
Burry said he converted outright shorts into puts on Nvidia, Palantir, Micron, Nebius, Oracle, Caterpillar, the iShares Semiconductor ETF, and the Nasdaq 100, with expirations between June and December next year.
He also closed his CoreWeave short, with plans to buy puts once they become attractively priced, and said he has purchased new puts on MetLife.
Burry provided the main details of each position. For example, he said he bought Nvidia puts that expire next September and are struck in the mid-$100s, below half of the AI chipmaker’s $229 share price at Monday’s close.
He added that his Nasdaq 100 puts are struck in the $24,000s and expire next September, indicating he expects the technology-heavy index to fall by nearly 20% within the next year from around $30,300 today.
Burry argued that AI companies are borrowing and spending unsustainable amounts to build data centers to support the technology, putting themselves in a vulnerable position.
‘If the spending stops or slows, it all comes apart,’ he wrote, adding that the cash being deployed is ‘increasingly debt, with strings attached.’
He noted that rising interest rates could also pressure AI companies, because private equity, private credit, and their insurers are financing much of the infrastructure buildout.
‘Higher rates stress every part of that chain,’ he said.
Burry sees trouble building
He said there are ‘signs of strain at each of the big hyperscalers’ in another recent post, adding that public comments and filings from AI giants ‘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 moved from running a hedge fund to discussing his personal investments on Substack last fall, became famous after his large contrarian bet against the mid-2000s U.S. housing bubble was chronicled in the book and film ‘The Big Short.’
He has repeatedly warned that the intense enthusiasm around AI, which has pushed the stock market to record highs this year, will not endure.
Burry has said AI giants are masking slowing growth, overinvesting in chips and data centers, using accounting tactics to boost short-term earnings, hurting shareholders by issuing excessive stock to compensate employees, and entering circular-financing deals to sustain hype and keep the momentum going.
But stocks have continued to shrug off not only concerns about excessive AI optimism, but also other headwinds such as foreign conflicts, rising interest rates, soaring bond yields, and a resurgent inflation threat.