Legendary investor Michael Burry, famed for foreseeing the 2008 housing collapse, has liquidated his investment fund just weeks after making bearish bets exceeding USD $1.1 billion against major artificial intelligence companies, signaling his profound skepticism about the sector’s current valuation.
This move comes after Burry, whose market predictions inspired “The Big Short,” broke a two-year silence to warn of a speculative AI bubble. He described the market as “distorted and fragile,” driving his decision to exit public trading.
Securities and Exchange Commission (SEC) filings in early November revealed his fund’s substantial put options against AI giants Nvidia and Palantir Technologies. These positions allowed him to sell shares at fixed prices in the future, wagering on a decline in their soaring stock values.
Burry later clarified via social media on November 12 that his actual cash outlay for these positions was approximately USD $9.2 million. One such position granted him the right to sell Palantir shares at USD $50 each in 2027, significantly below their then-current price of USD $174.
He accused “hyperscalers” like Oracle and Meta Platforms Inc. of artificially inflating profits. Burry alleged these companies extend the useful life of servers and AI chips from three to up to six years through aggressive depreciation practices.
“This is one of the most common scams of the modern era,” Burry wrote. He estimated that between 2026 and 2028, these practices could understate depreciation by USD $176 billion. This would inflate Oracle’s reported earnings by 26.9% and Meta’s by 20.8%.
News of Burry’s bearish positions caused immediate market tremors. Palantir shares fell by 11% in a single trading session, while Nvidia dropped 7%.
Palantir CEO Alex Karp publicly dismissed Burry’s bets as “super weird” and “completely… crazy.” Karp defended AI’s long-term potential.
Burry, whose X profile famously reads “Cassandra Unchained,” referenced the mythical prophet ignored in his decision-making. On October 30, he posted a cryptic message outlining his strategy.
Sometimes, we see bubbles.
Sometimes, there is something to do about it.
Sometimes, the only winning move is not to play.— Cassandra Unchained (@michaeljburry) October 30, 2023
In an investor letter dated October 27, Burry had indicated his intent to liquidate Scion Asset Management, which managed USD $155 million in assets. He promised to return capital to investors before the end of the year.
By November 10, Scion had officially withdrawn its SEC registration, a move that exempts it from certain public reporting requirements. This mirrors his previous closure of Scion Capital in 2008, shortly before his subprime mortgage bets yielded substantial profits.
Analysts are speculating that Burry’s fund closure is not a permanent retirement but a strategic repositioning. He hinted on November 25 at “much better things” to come, suggesting a potential shift to a family office structure. This would allow him to manage personal capital with less regulatory oversight.
Some experts, like Bruno Schneller of Erlen Capital Management, view Burry’s actions as a masterful strategic play. Others, including Jim Morrow, founder of Capital Callodina, echo his warnings, describing the AI boom as “the most crowded trade in history” headed for an “inevitable dismantlement.”
The S&P 500 and Nasdaq indices are currently hovering near historical highs, largely fueled by optimism surrounding AI. However, critics like Burry point to potential pitfalls.
The Economist has estimated that an accelerated obsolescence of AI hardware, with chips becoming outdated in one to two years instead of six, could lead to a severe depreciation crisis. Such a scenario could erase up to USD $4 trillion in market value.
Burry remains a divisive figure in financial circles. He is seen by some as a prophetic genius and by others as out of touch with modern market dynamics.