Michael Burry's new short bets spook market and anger Palantir CEO, but his trade is likely underwater

Michael Burry's Scion Asset Management disclosed substantial put contracts on AI leaders Nvidia and Palantir Technologies at the end of Q3, a revelation that contributed to a sell-off in AI names. Despite the market reaction, analysts indicate Burry is likely significantly underwater on these bearish positions, with Nvidia needing to drop another 7% and Palantir 5% from current levels for him to break even, given their stock performance since Q3. The article notes that these reported holdings reflect Q3 positions and may no longer be active, highlighting the difficulty of profiting from market timing even when identifying potential bubbles, a challenge Burry has faced with recent market calls.

Analysis

Michael Burry's Scion Asset Management disclosed significant put contracts against AI leaders Nvidia (NVDA) and Palantir Technologies (PLTR) at the end of Q3. This revelation, made earlier than the typical 13F deadline, contributed to a sell-off in AI names on Tuesday, exacerbating investor concerns over elevated valuations. Palantir CEO Alex Karp publicly dismissed Burry's wagers as "super weird" and "batsh-- crazy".

Despite the market reaction, market veteran Jon Najarian suggests Burry's bearish positions are likely "deep in the red." Nvidia's stock remains higher than at any point in Q3, and Palantir would have only briefly reached breakeven even if puts were established at its August highs. Najarian estimates Nvidia needs to drop an additional 7% and Palantir 5% for Burry's trades to become profitable.

The reported holdings reflect positions at the end of September and may no longer be active, given Burry's history of rapid trading. This situation underscores the challenge of profiting from market timing, even when identifying potential bubbles, a difficulty Burry has faced with recent market calls like his "Sell" warning in early 2023 before a significant AI-led rally. The mixed market reaction, with NVDA recovering slightly and PLTR declining further despite "stellar results," highlights ongoing volatility in the AI sector.

Key Decisions for Investors

• Investors should critically assess the validity of a short thesis against high-growth AI stocks like NVDA and PLTR, considering their strong year-to-date performance and the difficulty even seasoned short-sellers face in timing such bets.
• Recognize that disclosed 13F filings are historical snapshots; Burry's positions may no longer be active, underscoring the risk of trading solely on past disclosures.
• While concerns about "sky-high valuations" persist, investors should balance these against company-specific fundamentals, as Palantir's recent decline occurred despite "stellar results," indicating market sentiment can override immediate positive news.