"Big Short" Money Manager Michael Burry Just Bet Against Nvidia and Palantir. Is He Calling the Top of the Artificial Intelligence (AI) Boom?

Michael Burry's Scion Asset Management has initiated significant short positions against Nvidia (NVDA) and Palantir Technologies (PLTR) through put options during the third quarter, signaling his belief that the artificial intelligence sector is overvalued. Burry, known for his accurate prediction of the 2008 mortgage crisis, appears to draw parallels to the dot-com bubble, particularly noting Palantir's 124 price-to-sales multiple and Nvidia's 29 P/S ratio as indicative of frothy valuations. This move suggests a potential correction for these AI-driven stocks, even as major tech firms continue to accelerate investments in AI infrastructure.

Analysis

Michael Burry's Scion Asset Management has initiated short positions in Nvidia (NVDA) and Palantir Technologies (PLTR) via Q3 put options, signaling a bearish outlook on the artificial intelligence sector. This move, by an investor known for predicting the 2008 mortgage crisis, suggests a perceived overvaluation, drawing parallels to the dot-com bubble.

Palantir's valuation, with a price-to-sales (P/S) multiple of 124, is significantly higher than software peers and historical dot-com era peaks (30-50). Nvidia's P/S of 29, while below its peak, is comparable to dot-com highs, potentially indicating limited upside or a valuation threshold. This is further compounded by increasing competition from Advanced Micro Devices and Broadcom in the GPU market.

Despite Burry's bearish stance, the article highlights robust and accelerating AI infrastructure spending by hyperscalers. Meta Platforms, Microsoft, and OpenAI are committing significant capital to procure Nvidia GPUs and related services, indicating strong underlying demand for AI technologies.

Broader market indicators show a Shiller CAPE ratio near 40, close to a two-decade high, alongside a Fear & Greed Index at 29, suggesting market fear amid high valuations. The author acknowledges Palantir's frothy valuation but maintains a long-term bullish view on both Palantir and Nvidia, citing their compelling growth opportunities within the AI narrative.

Key Decisions for Investors

• Evaluate Burry's short thesis by monitoring the sustainability of current AI infrastructure spending and potential competitive pressures on Nvidia and Palantir.
• Assess Palantir's extreme 124 P/S multiple against its long-term growth trajectory and the broader software landscape, considering potential near-term pullbacks.
• Consider Nvidia's valuation and market position, weighing its continued demand from hyperscalers against increasing competition and historical valuation thresholds.
• Monitor macro indicators such as the Shiller CAPE ratio and Fear & Greed Index for broader market overvaluation signals and potential systemic risks.