Is 'Big Short' Michael Burry's Bet Against Palantir and Nvidia ‘Bats--- Crazy’?

When Hollywood makes a film about you, the actions that you took and the real events that you set into motion, you can be sure of one of two things.

Either you did something awful, or something amazing. 

Dr. Michael Burry falls into the latter category. His actions as a hedge fund manager, as chronicled in the largely accurate film The Big Short, are the stuff of trading legends. 

Burry famously used credit default swaps to short mortgage-backed securities prior to the collapse of those instruments in 2008, earning hundreds of millions of dollars for himself and his investors.

A Trading Legend

How many players get to walk away from the game as a legend? But Burry was just in his late thirties at the time, still a relatively young age in the hedge fund game.

Burry seems determined to recapture and exceed his past glory, by entering short trades that go sharply against the grain.

On January 31, 2023, back when social media platform X was still Twitter, Burry posted a single-word tweet. The word was “Sell,” and nobody will be making a film about how that one turned out. To Burry’s credit, he admitted he was wrong in a now-deleted tweet two months later.

Nvidia and Palantir

Now Burry, through his Scion Asset Management fund, is shorting again. This time he’s betting against Nvidia  (NVDA)  and Palantir  (PLTR) , two of the pillars of the multi-year AI and tech rally investors are currently enjoying. 

According to a recent filing, Scion’s top holding in the third quarter consisted of new put options against Palantir that are equivalent to a short position of 5 million shares. Burry also purchased puts that equate to 1 million shares of Nvidia during that quarter.

In response, Palantir co-founder and CEO Alex Karp referred to Burry in a way that I can’t repeat here. Since the same actor, the talented Christian Bale, portrayed both Burry and Batman on the big screen, let’s just say that Karp described Burry as “Batman crazy.”

Valuation or Liquidity?

I respect Burry, and I agree that these two names — both of which I’m currently long — are overvalued. They’ve been overvalued for a while. I believe they’re likely to become even more overvalued in the near future.

In my opinion, the issue isn’t valuation — it’s liquidity. 

The U.S. money supply, as represented below by M2, continues to climb. This rise in the money supply comes despite the Federal Reserve’s quantitative tightening program, which is now slated to end in December. 

The Bottom Line

If Burry is wrong about Palantir and Nvidia, he’ll probably correct course quickly, just like he did in 2023.

Eventually, Burry will be right on his short bets. When that happens, he’ll probably reap a windfall.

If that’s the case, there will be sufficient time to exit our long positions in AI and related names. I’m not convinced that it will happen now, but it’s never a bad idea to consider your exits in advance. 

At the time of publication, Ponsi was long PLTR and NVDA.