Michael Burry, the legendary investor who predicted the 2008 financial crisis, has placed a massive short bet of $1.1 billion against AI giants Nvidia and Palantir, signaling his belief that the AI bubble is set to burst. His hedge fund Scion Asset Management bought put options on 1 million Nvidia shares valued at $187 million and 5 million Palantir shares worth $912 million during the third quarter.
This move stands out as a bold contrarian call amid soaring AI stock valuations, where Nvidia recently hit a $5 trillion market cap and Palantir trades with an extraordinary price-to-earnings ratio exceeding 400 despite revenue still in the billions. Palantir CEO Alex Karp vehemently criticized Burry’s shorts as “bat— crazy,” arguing both companies are highly profitable and core players in AI’s future.
Nvidia’s shares fell 4% and Palantir’s plunged 8% shortly after the disclosure, fueling market jitters about a potential AI sell-off. Burry’s bet highlights concerns around intertwined AI company partnerships creating a self-reinforcing bubble, dependent on inflated valuations that may collapse sharply. While Burry has an impressive record spotting market bubbles, investors should weigh the risk that he may be early and consider portfolio diversification. This large short trade underscores increasing caution on the sustainability of the AI rally, where the sector’s high prices are causing some top investors to push back, sparking volatility in tech stocks tied closely to AI innovation and hype.
The Michael Burry effect is already shaping market behavior. Nvidia and Palantir are just the start. Hype-driven rallies are vulnerable to sharp corrections. Contrarian bets like Burry’s expose cracks that others may ignore. Investors now watch AI stocks more closely. Every earnings report, every market rumor, and every valuation metric is under scrutiny. The buzz around AI remains strong, but Burry’s move shows the price of ignoring risk.
Who is Michael Burry and why does he matter?
Michael Burry is not your average investor. He first became famous for predicting the 2008 housing crisis and betting against the US housing market—a story that was later turned into the movie The Big Short. His reputation? Spotting bubbles before they burst and making huge profits when others are blind to risk.
Today, he’s back in the headlines, but this time the spotlight is on AI stocks. Burry’s hedge fund has made massive bets against Nvidia and Palantir, two companies often seen as leaders in the AI revolution. For many, his move is shocking: these stocks have been soaring on hype, and suddenly a legend is betting they will fall.Burry is known for contrarian investing—he thrives by going against the crowd. When everyone is rushing in, he often steps out. And in the current AI frenzy, his bets are sending ripples through the market. Investors are asking: is this just another bold move, or a warning signal for a bigger problem?According to reports from The Washington Post and Fortune, Burry believes the market is overestimating how quickly AI will translate into real profits. He even shared cryptic posts on X, saying, “Sometimes, the only winning move is not to play,” a warning that mirrors his eerie calm before the 2008 financial crisis. The message hit hard: this could be the start of a painful correction across the tech landscape.
Market data supports his skepticism. Cloud revenue growth from major players like Amazon, Microsoft, and Google has started slowing despite unprecedented AI investments. Analysts note that data-center spending and AI chip demand are still strong but showing early signs of saturation. Nvidia’s recent earnings guidance hinted at “normalized” growth after its record-breaking 2024 run, and Palantir’s government contracts, though solid, have faced delays and valuation concerns. The combined effect has investors wondering if the sector’s trillion-dollar valuations were built on more hype than fundamentals.
Within 72 hours of Burry’s bets surfacing, AI-heavy ETFs saw billions in outflows, and the Nasdaq’s tech index recorded its sharpest three-day fall since April. According to Business Insider, this marks one of the fastest evaporations of market value since the dot-com bubble. Palantir, once a symbol of AI-fueled optimism under CEO Alex Karp, now faces its toughest investor sentiment test yet. Nvidia, meanwhile, remains a powerhouse in AI chips, but its valuation—over 25 times sales—is beginning to look stretched.
Experts remain divided. Some, like Goldman Sachs strategists, call this a “healthy correction” rather than a collapse, noting that AI infrastructure demand remains robust. Others argue Burry may once again be seeing what few dare to admit—that speculative mania has quietly taken hold. As one Fortune analyst wrote, “When everyone is all-in on AI, the contrarian move is to sell.”
Still, it’s important to note that Burry’s positions might be hedges, not outright shorts. SEC data doesn’t confirm strike prices or expiry dates, leaving the real scale of his conviction a mystery. But what’s undeniable is the psychological shockwave his name carries. Just one disclosure from the man behind The Big Short was enough to erase hundreds of billions in paper wealth and reignite debate over whether the AI boom is sustainable—or if we’re staring at the next financial bubble in the making.
For now, the Michael Burry effect has reawakened Wall Street’s long-dormant fear of irrational exuberance. Nvidia and Palantir’s tumble shows how fragile investor confidence can be when optimism meets reality. Whether this marks a short-term shakeout or the start of a deeper correction, one thing is clear: the AI dream is under scrutiny, and once again, Burry has everyone listening.
What exactly is happening with Nvidia and Palantir?
Recently, Burry’s fund disclosed that it owns put options—financial instruments that profit if a stock’s price drops—on millions of shares of Nvidia and Palantir. These are not small positions. The value of these bets runs into billions of dollars.
The news hit the market like a thunderclap. Nvidia’s stock dropped around 4%, while Palantir fell roughly 8% in just a few days. For companies that have been celebrated as the poster children of the AI boom, this was a wake-up call.
Nvidia’s stock price is around $188, holding a massive market cap of about $4.58 trillion, with a P/E ratio of 53.6, reflecting high investor expectations for growth tied to its AI-driven GPU technology. Palantir’s stock stands near $178, with a market cap over $406 billion and an extremely high P/E ratio around 404, signaling speculative and high-growth expectations despite less established profitability.
Palantir’s CEO Alex Karp has vocally pushed back on the short-seller actions, defending the company’s strong earnings growth and expanding AI applications, even as Palantir’s stock has surged by 135% in 2025.
Nvidia, the leader in AI hardware with dominant GPUs powering large-scale AI data centers, continues to innovate aggressively, but faces pressure from regulatory actions such as the U.S. ban on AI chip sales to China.
The combined factors of high valuations, insider selling, regulatory challenges, and aggressive speculative bets against them have created a tense environment causing sharp price swings for these AI stocks.
Many investors were caught off guard. Both companies had strong recent performance and were widely expected to continue their upward trajectory. But the market remembered a familiar story: bubbles can collapse fast, and even the most popular stocks aren’t immune.
Why is everyone calling this the “Michael Burry effect”?
When a well-known contrarian like Burry bets against a hot sector, the market takes notice. This phenomenon—dubbed the “Michael Burry effect”—happens because people start questioning the hype.
Essentially, Burry is sending a signal: maybe these AI stocks are overvalued. He is highlighting the risks that others are ignoring, from stretched valuations to unrealistic growth expectations. Investors who follow him often reassess their positions, which can create market volatility.
It’s not that Burry wants to crash the market. Rather, his move is a reminder: popularity doesn’t equal safety. When sentiment shifts, even seemingly unstoppable stocks can see sudden declines.
Could this trigger a wider market reaction?
Some fear Burry’s bets could cause broader turbulence in tech-heavy markets. Nvidia and Palantir are not small companies—they’re high-profile players in the AI boom. When these stocks wobble, other investors may start to worry about valuations across the sector.
This doesn’t mean a crash is guaranteed. AI is still a powerful growth story, and both companies have solid fundamentals. But Burry’s move highlights how investor sentiment can swing quickly, especially in industries fueled by hype.
Markets often react strongly to credible warnings, and Michael Burry carries weight. Even a small hint of caution from him can lead to short-term volatility, and some traders may use this as an opportunity to hedge or take profits.
What does this mean for regular investors?
For everyday investors, there are a few takeaways:
- Check valuations, not just hype. Just because a stock is popular or in a “hot” sector doesn’t mean it’s safe. Nvidia and Palantir may be market favorites, but high expectations can backfire.
- Sentiment can move stocks fast. A single news story, especially involving a high-profile investor, can shift the mood in the market and affect stock prices dramatically.
- Be prepared for volatility. Even companies with strong growth stories can experience sudden dips. Investors need to plan for both upsides and downsides, particularly in sectors like AI where hype can distort reality.
Burry’s move also reminds us of a broader principle: contrarian thinking can pay off, but timing is crucial. Markets can remain irrational longer than expected, so patience and careful analysis are key.
Is this the start of an AI bubble burst?
It’s too early to say if AI stocks are entering a full-blown bubble collapse. But Burry’s bets are a strong reminder that markets can be unpredictable. AI may revolutionize industries, but investors must balance optimism with caution.
The “Michael Burry effect” is not just about the stocks he chooses to bet against—it’s about a mindset. It asks investors to question the narrative, consider valuation risks, and think long-term, rather than blindly following hype.
In other words, Burry is not just shorting stocks; he’s shining a light on potential pitfalls, urging caution in a frenzy-driven market. For many, this may be the most important lesson from the latest AI craze.