The Big Short investor bets $1B against AI

Michael Burry, the legendary investor portrayed in The Big Short for predicting the 2008 subprime mortgage collapse, is putting serious money behind his warnings about the current AI frenzy.

According to regulatory filings released on Monday for the quarter ended September 30, Burry's hedge fund, Scion Asset Management, bought more than $1 billion in put options against Nvidia and Palantir. A put option gives the buyer the right to profit when a stock's price declines. In contrast, Scion also loaded up on call options for traditional plays like Pfizer and Halliburton.

Calling out the bubble, and a sharp rebuke

Burry had already been dropping cryptic warnings on X. In a recent post, he hinted that market participants sometimes see bubbles forming, and sometimes the only winning move is not to play.

He doubled down on Monday by sharing three charts. One from Bloomberg illustrated how much of the ongoing AI boom is being propped up almost entirely by Nvidia and OpenAI partnerships. Another drew uncomfortable parallels between today's tech capital expenditure surge and the spending spiral right before the dot-com crash.

Scion actually held a put position on Nvidia back in the first quarter of this year while liquidating nearly its entire equity portfolio. Back then, filings noted the puts might serve as hedges for unlisted longs. In this latest filing, that hedging disclaimer is nowhere to be found.

Palantir CEO Alex Karp was quick to strike back. In an appearance on CNBC's Squawk Box, Karp called the short batshit crazy, arguing that Nvidia and Palantir are the exact two companies actually turning AI into massive profits right now.

Wall Street, however, looked jittery. On Tuesday, the Nasdaq dropped 1.5% at the open, while the S&P 500 slipped about 1%. Palantir shares tumbled as much as 16% following earnings, despite beating revenue targets, as Deutsche Bank analyst Jim Reid noted investor frustration over weak visibility into 2026. Nvidia dipped over 2%, just days after becoming the world's first $5 trillion company.

Why it matters

When one of history's most famous contrarians takes out a billion-dollar bet against the twin engines of AI infrastructure and enterprise software, it is worth paying attention.

For regular investors and tech builders, this is not a signal to blindly mimic hedge fund derivative trades. Put options are notoriously timing-sensitive. But Burry is far from alone in spotting cracks; the heads of both Goldman Sachs and Morgan Stanley have recently warned of a potential 10% to 20% broader market correction over the next two years.

In terms of industry impact, Burry is aiming straight at the narrative backbone of the entire cycle. Nvidia supplies the compute, while Palantir represents enterprise monetization. If the market starts questioning whether even these two cash-generating titans can sustain their multiples, late-stage AI startups burning cash on GPUs will face even tighter capital spigots.

We think Burry's tactical choice is clever because targeting high-flying momentum leaders exposes the valuation fragility of the whole trade. The big risk, of course, is timing. Nvidia's $5 trillion gravity can stay irrational far longer than short sellers can stay solvent. Still, this move officially marks the end of consequence-free optimism in the AI chip trade.