Michael Burry Bets $1.1B Against AI Stocks, Sparking Selloff

Michael Burry, the investor who famously predicted the 2008 housing crisis and was immortalized in “The Big Short,” has disclosed a $1.1 billion short position against Nvidia and Palantir Technologies through put options. This massive bet represents approximately 80% of his Scion Asset Management portfolio as of September 30, signaling his conviction that AI stocks have reached unsustainable valuation levels. The disclosure came on Monday and immediately triggered a wave of selling across technology markets, demonstrating Burry’s continued ability to move markets with his contrarian positions.

The market reaction was swift and severe. Palantir dropped as much as 16% on Tuesday before closing down approximately 8%, despite the company beating third-quarter earnings estimates and raising its full-year guidance. Nvidia fell between 2% and 4% during the same trading session, while the Nasdaq Composite recorded its largest one-day percentage drop in nearly a month at roughly 2%. Every member of the “Magnificent Seven” AI-related stocks closed lower that day, indicating broad-based concern about AI valuations.

The sell-off quickly spread beyond U.S. borders, affecting Asian and European markets in the following days. Indices in Japan and South Korea dropped significantly as concerns over tech valuations became a global sentiment driver. This international reaction underscores how interconnected global markets have become and how quickly sentiment can shift in the technology sector, particularly around high-flying AI stocks.

Palantir’s extreme valuation metrics made it particularly vulnerable to sustained bearish pressure. The data analytics company trades at a price-to-earnings ratio of approximately 254 and a price-to-sales ratio of around 115, levels that many analysts consider unsustainable. The stock prices are currently trading below the average of the last 50 days, which technical analysts view as a warning sign. In contrast, Nvidia, which controls roughly 80% of the AI chip market, experienced a more modest and contained sell-off, with its stock never dropping below its 50-day benchmark, suggesting stronger underlying fundamentals and technological dominance.

Burry’s short position coincided with warnings from major Wall Street executives, adding credibility to his bearish stance. CEOs from Morgan Stanley and Goldman Sachs publicly cautioned investors to prepare for potential market corrections of 10% to 20% in equity markets over the next couple of years. Deutsche Bank reportedly began exploring strategies to hedge its exposure to AI-driven investments in data centers, indicating institutional concern about the sector’s sustainability.

In social media posts, Burry highlighted the issue of “circular financing,” pointing to arrangements where major tech companies invest in or lend to partners like OpenAI, Oracle, and CoreWeave, who then commit to purchasing chips and services primarily from Nvidia. Analysts at Seaport Global Securities described these deals as “emblematic of bubble-like behavior,” questioning whether the reported growth represents genuine organic demand or artificial inflation through interconnected financial arrangements.

Palantir CEO Alex Karp responded aggressively to Burry’s position, calling it “batshit crazy” and dismissing Burry’s logic. Karp stated that the short would motivate his company to produce better numbers “to make them poorer,” setting up a classic battle between a prominent short seller and a determined CEO. This public confrontation highlights the emotional and financial stakes involved in the AI investment debate.

Despite the initial volatility, neither Nvidia nor Palantir has returned to its prior all-time highs, suggesting that Burry’s disclosure has injected lasting caution into the AI sector. Investors are treating his short as valid information—one that, combined with CEO warnings and technical valuation extremes, justifies a near-term reduction of risk in the most speculative parts of the AI rally. The episode serves as a reminder that even in the most promising technological sectors, valuation discipline remains crucial for long-term investment success.