Michael Burry is moving up the timeline of his bearish outlook on the outcome of the artificial intelligence boom.
This investor is famous for short-selling the U.S. real estate market before the global financial crisis from 2007 to 2009. He stated that he is converting his short positions in key AI stocks into put options in order to achieve more cost-effective leverage over a shorter time frame.
"Fundamentally speaking, I am moving the timeline forward," Burry wrote in an investment newsletter released on Monday. "Therefore, I hope to obtain more leverage in my short positions. A better timeline makes leverage more acceptable. There is nothing that illustrates leverage better than leverage itself, and in this case, it comes down to put options, which are relatively cheap due to the abnormally tight volatility indicators such as those of VIX."
He said that some of his actions were aimed at reducing the tax burden, but the main reason was his belief that “the AI bubble might burst earlier than expected.” New positions, which are mainly based on put options, indicate that AI transactions could reverse around next summer.
He converted his short position in Micron into put options with an expiration date in June and an exercise price in the $500 range. He also converted his short positions in Nebius into put options with an expiration date in June and an exercise price in the “teens of dollars” range. Furthermore, he replaced his short positions in SOXX, iShares, and ETF semiconductors into put options with an expiration date in September 2027 and an exercise price in the “low $400” range.
He also "replaced and rolled over the short and put option positions of Palantir, converting them into a larger put option position," which is concentrated for expiration in September 2027 with an exercise price at the low level of $100.
Burry cited a recent study by Ares Management. The study emphasizes that there are vulnerabilities in the income sources that are not yet verified in the field of AI, and that these arrangements are constrained by strict legal agreements.
"Only one quarter is required where the AI revenue fails to meet the expectations for supporting capital expenditures. In such a case, if a minority of the board of directors tends to reallocate capital to the most certain bets, they only need to conclude that the most certain bets have changed. Legal documents have anticipated this decision," states the Ares report.
Burry's recent actions indicate that his bearish sentiment towards AI trades is intensifying. Earlier this month, he also increased his short bets on Micron, Nebius, and SOXX.
He also quoted the words of Acer CEO Jason Chen. Jason Chen told a Taiwanese media outlet that due to the continuous increase in production capacity in China, the memory chip industry will once again experience cyclical fluctuations.
"How could there be a continuous shortage? China's production capacity has been increasing, so there is no such thing as a shortage at all. Contract prices are currently fluctuating at high levels; some prices are rising, while others are falling," the report quotes Jason Chen as saying.
Burry Since the beginning of this year, it has been on a downward trend, but the stock market has still continuously set new highs. Burry In May, it was said that stocks "feels like the last few months of the bubble from 1999 to 2000." The Nasdaq Composite Index closed at a record high last week.
However, many tech stocks are still far below their highs. Micron is 16% lower than its record high, while Palantir is about 10% lower than its historical high.
