The markets have been buzzing with activity since legendary investor Michael Burry revealed substantial short positions against several prominent AI companies, setting up what could be his biggest contrarian bet since the 2008 housing crisis. The investor, whose prescient mortgage market warnings were immortalized in “The Big Short,” has now turned his skeptical eye toward what many consider today’s most promising technological revolution.
According to regulatory filings released this week, Burry’s Scion Asset Management has established significant short positions against Nvidia, Palantir, and several other technology firms heavily invested in artificial intelligence infrastructure. These moves appear calculated to capitalize on what Burry describes as “unsustainable valuation multiples” across the AI sector heading into 2025.
“The disconnect between market expectations and economic reality has rarely been this pronounced,” Burry wrote in a brief social media post that sent tremors through financial circles. “We’re witnessing a replay of familiar market psychology, just with different actors.”
Financial data from FactSet shows Nvidia trading at approximately 35 times forward earnings, significantly above historical averages for semiconductor companies. Similarly, Palantir’s enterprise value to sales ratio remains in territory typically associated with early-stage growth companies rather than established enterprises.
The timing of Burry’s position appears strategic. His move comes after Nvidia’s stock has surged over 160% year-to-date, pushing its market capitalization above $3 trillion. Meanwhile, Palantir shares have climbed more than 200% since January as investors rushed to gain exposure to companies with perceived AI advantages.
“Burry isn’t necessarily arguing against AI’s transformative potential,” explains Melissa Chen, chief market strategist at Morgan Stanley. “He’s questioning whether current valuations accurately reflect the realistic timeline for AI implementation and monetization across industries.”
The Federal Reserve’s most recent financial stability report flagged concentrated investments in technology stocks as a potential vulnerability for markets, noting that the five largest technology companies now represent nearly 25% of the S&P 500 index’s total value—a concentration not seen since the late 1990s tech bubble.
Venture capital funding for AI startups has similarly shown signs of potential overheating. Data from PitchBook indicates that AI-focused companies attracted $35.2 billion in the first three quarters of 2023, a 43% increase year-over-year despite overall venture funding declining across most other sectors.
“The classic ingredients for a bubble are all present,” Burry argued in an investor letter obtained by the Financial Times. “Narratives superseding fundamentals, widespread dismissal of traditional valuation metrics, and the inevitable ‘this time is different’ rationalization.”
Not everyone shares Burry’s skepticism. ARK Invest founder Cathie Wood publicly challenged his position, arguing that AI represents a genuine paradigm shift comparable to the introduction of the internet or mobile computing. “History shows that truly transformative technologies are often underestimated in their early phases, not overestimated,” Wood countered in a CNBC interview yesterday.
Goldman Sachs recently projected that generative AI could add approximately 1.5 percentage points to global GDP over the next decade while potentially automating tasks equivalent to 300 million full-time jobs. This productivity enhancement, if realized, could theoretically justify significant portions of current valuations.
The technical aspects of Burry’s short positions remain undisclosed, though market analysts speculate he’s utilizing a combination of direct stock shorts and put options expiring in late 2025, giving his thesis approximately 12-18 months to materialize.
Previous Burry predictions have shown mixed results. While his housing market call proved extraordinarily accurate, subsequent bearish positions on Treasury bonds and the broader market have delivered more uneven outcomes. His brief short position against Tesla in 2021 would have eventually proven profitable had it been maintained through 2022’s tech selloff.
The current AI investment landscape does show concerning parallels to previous technology bubbles. Companies are increasingly adding “AI” terminology to corporate communications regardless of substantive business model changes—a linguistic pattern reminiscent of companies adding “.com” to their names during the internet bubble.
“What we’re witnessing is a classic feedback loop,” explains Robert Shiller, Nobel Prize-winning economist at Yale University. “Rising prices attract attention, creating narratives that justify those prices, which then attract more capital, pushing prices higher still.”
For retail investors caught between competing narratives from investment luminaries, financial advisors recommend caution. “Burry’s track record commands respect, but timing market turns remains notoriously difficult,” says Jennifer Rodriguez, certified financial planner at Fidelity Investments. “Maintaining diversified exposure while perhaps trimming positions that have grown disproportionately large represents a prudent middle ground.”
Whether Burry’s AI skepticism proves as prescient as his housing market warnings remains to be seen. What’s certain is that his contrarian stance has introduced a necessary counterpoint to the prevailing AI enthusiasm, potentially compelling investors to scrutinize their assumptions more rigorously as we enter 2025.
In financial markets, as in technology itself, the most valuable contribution is often not unquestioning acceptance but thoughtful, data-driven skepticism—a quality Michael Burry continues to embody, for better or worse.
