Why Michael Burry Is Betting $1 Billion Against AI Stock Darlings

The hedge fund manager who made a fortune predicting the 2008 financial crisis is now sounding a loud alarm about another potential market collapse. Michael Burry’s latest move has investors paying close attention: his firm, Scion Capital Management, has positioned over $1 billion of its $1.4 billion portfolio in put options—essentially betting that two of the hottest AI stocks are headed significantly lower.

This isn’t casual speculation. Michael Burry’s track record suggests we should listen when he makes such massive directional bets. The question on every investor’s mind is whether this represents another prophetic call or simply a well-funded miscalculation.

The $1.4 Billion Short: Understanding Michael Burry’s Current Positions

Michael Burry’s latest short positions reveal a sophisticated two-pronged attack on the artificial intelligence boom. His portfolio allocation tells the story: 66% is committed to put options on Palantir Technologies (NASDAQ: PLTR), while another 14% sits in put options on Nvidia (NASDAQ: NVDA). This concentration represents a deliberate bet against both a leading AI software platform and the dominant chipmaker powering the entire AI infrastructure buildout.

The stakes are real. Palantir shares have surged 2,000% since OpenAI’s ChatGPT launch in November 2022, driven largely by enthusiasm around the company’s Artificial Intelligence Platform (AIP) that debuted in April 2023. CEO Alex Karp has cultivated a devoted retail investor following, partly through his public criticism of Wall Street practices. The company’s revenue acceleration across nine consecutive quarters has only intensified investor appetite.

Nvidia tells a similar story. The chip manufacturer now controls over 90% of the data center GPU market and has established itself as essential infrastructure for the AI revolution. Its dominance in AI accelerators and networking equipment has made the company virtually synonymous with AI advancement.

Yet Michael Burry sees something different when he looks at these valuations—an unsustainable bubble waiting to deflate.

From Subprime to AI: How Michael Burry Spotted the Bubble

Understanding Michael Burry’s skepticism requires revisiting his most famous call. In the mid-2000s, Burry identified the fundamental rot in the subprime mortgage-backed securities market long before it became apparent to mainstream investors. He structured an $800 million bet against these securities, purchasing credit default swaps that paid out handsomely when the housing market collapsed. His story became the subject of both a bestselling book and Oscar-nominated film, The Big Short.

That historical success provides crucial context for evaluating his current positions. Michael Burry didn’t get rich making obvious predictions—he excels at identifying mispricing and structural vulnerabilities that others miss.

The similarities between today’s AI enthusiasm and the dot-com bubble are striking, according to Ken Griffin, another prominent hedge fund billionaire. Both periods featured breakthrough technology receiving disproportionate investor attention, both saw valuations disconnected from underlying fundamentals, and both eventually resulted in sharp market corrections.

Extreme Valuations Mirror the Dot-Com Era: What CAPE Ratios Reveal

The most compelling evidence supporting Michael Burry’s concerns comes from valuation metrics. In October 2025, the S&P 500 achieved a cyclically adjusted price-to-earnings (CAPE) ratio of 39.5—a level not seen in a quarter-century. Remarkably, the index has only exceeded a CAPE ratio of 39 during one other extended period in market history: the dot-com bubble, when it remained elevated for 22 consecutive months before the crash.

History provides a sobering guide to what happens next. When the S&P 500 has reached such extreme valuations in the past, subsequent returns have proven consistently negative:

• 1-year forward return: -4%
• 2-year forward return: -20%
• 3-year forward return: -30%

These figures mean that, based on historical precedent, the S&P 500 could decline approximately 30% by late 2028. The S&P 500 has advanced 75% since ChatGPT’s launch in November 2022, compounding at 20% annually—far exceeding the long-term average of 10% and fueling comparisons to past bubbles.

Michael Burry isn’t simply making an isolated bet against two stocks. His positions reflect a conviction about broader market dynamics and the inevitable mean reversion that historically follows periods of excessive valuation.

What Investors Should Do When Michael Burry Sounds the Alarm

Investors face a critical choice: dismiss Michael Burry’s concerns as a contrarian’s natural pessimism, or acknowledge that his historical accuracy warrants serious consideration. While past performance never guarantees future results, the current environment does suggest prudence is warranted.

This doesn’t necessarily mean immediately selling all equity holdings or predicting imminent catastrophe. Rather, Michael Burry’s positioning should prompt investors to evaluate their own exposure to richly valued segments, particularly in artificial intelligence. Several defensive measures merit consideration:

Scrutinize current holdings for excessive valuations and determine whether positions still align with your risk tolerance. Avoid catching the momentum in stocks trading at absurdly stretched multiples relative to current earnings. Consider gradually building a cash position that provides dry powder to capitalize on significant market dislocations when they inevitably arrive.

The gap between current prices and historical price-to-earnings ratios suggests significant downside risk remains. Rather than fighting this dynamic, sophisticated investors should position themselves to benefit when sentiment shifts and valuations normalize toward historical averages.

Michael Burry’s billion-dollar warning deserves serious reflection, even if investors don’t adopt his exact strategy. The combination of extreme valuations, AI mania echoing the dot-com bubble, and his proven track record of identifying market vulnerabilities presents a compelling case for caution in the months and years ahead.