Michael Burry, the prominent investor known for his role in "The Big Short," expressed in a recent Substack post that he believes the AI market may experience a downfall sooner than previously anticipated. On Monday, Burry revealed that he is "moving timelines up" in response to the burgeoning concerns regarding the AI sector.
Burry feels increasingly assured that his outlook on this issue will manifest within the coming year, shifting his previous prediction that the downturn would unfold by 2028. This revised timeline has led him to enhance his short positions, opting to replace his direct short sales with bearish put options.
These put options grant him the right, rather than the obligation, to sell stocks at a predetermined price before a specified expiration date. If the market price of the stock dips below this strike price, he can exercise the puts for a profit or sell the options themselves.
Among the stocks he selected for his put options are Nvidia, Palantir, Micron, Nebius, Oracle, Caterpillar, the iShares Semiconductor ETF, and the Nasdaq 100, with expiration dates ranging from June to December of next year. Additionally, he has closed his short position in CoreWeave but plans to acquire puts on it when the pricing is favorable. He also reported recently buying puts on MetLife.
Burry detailed his strategies, noting that he purchased Nvidia puts set to expire in September, with strike prices in the mid-$100 range—significantly lower than Nvidia's closing price of $229 on Monday. Furthermore, his puts on the Nasdaq 100 have a strike price in the $24,000s, indicating his expectation for a nearly 20% decrease in the index from its current level of around $30,300 over the next year.
He attributed the unsustainable spending practices of AI companies, particularly in the construction of data centers, as a major factor leading to potential failure. Burry remarked, "If the spending stops or slows, it all comes apart," pointing out that much of this expenditure is increasingly reliant on debt with restrictive conditions.
Additionally, he highlighted that rising interest rates could exacerbate challenges for AI firms, as private equity and other financing sources play a critical role in their infrastructure expansion. Burry noted that "higher rates stress every part of that chain."
Burry's analysis suggests significant issues are surfacing among leading hyperscalers. He mentioned that public statements and filings by AI corporations provide insights into their actual stress levels, leading him to conclude that these companies are beginning to show signs of distress.
Since pivoting from hedge fund management to sharing insights about his personal investments on Substack, Burry has gained notoriety for his counterintuitive stance against the 2000s housing bubble, a narrative brought to life in both book and film via "The Big Short." He has consistently voiced skepticism about the enduring nature of the excitement surrounding AI, which has been a driving force behind stock market highs this year.
Burry argues that leading AI companies are obscuring stagnant growth, overcommitting to technology infrastructure, using accounting techniques to artificially enhance short-term earnings, diluting shareholder value through excessive stock issuance, and engaging in circular financing to maintain hype in the market. Despite these concerns, stock performance has largely remained resistant, dismissing not only the excessive enthusiasm around AI but also broader economic challenges like geopolitical tensions, increasing interest rates, rising bond yields, and persistent inflation fears.
