The AI Reckoning: Michael Burry Positions for a Historic Downturn

The man who profited enormously by shorting the 2008 housing crisis now sees parallels in today’s artificial intelligence sector. Michael Burry has placed substantial bets against two of the market’s most celebrated AI-linked companies: Nvidia and Palantir Technologies. With these firms commanding roughly $5 trillion in combined market value and driving much of this year’s stock market gains, Burry’s contrarian stance raises questions about whether valuations have detached from economic fundamentals.

A Bubble Waiting to Pop

Burry’s thesis centers on a fundamental disconnect: while AI technology itself has merit, the market has become untethered from reality. He draws explicit comparisons to the dot-com era, describing it not as a technology bubble but as a data-transmission bubble—a distinction suggesting that infrastructure investments, not innovation, became the speculative focal point.

His concerns extend to how AI infrastructure companies are financing each other’s purchases, resembling accounting tactics from corporate scandals like Enron. Companies such as Oracle and Meta have received financing from Nvidia to buy chips, creating a circular dependency that masks underlying demand weakness. Additionally, Burry questions the accounting practices surrounding chip longevity and asset depreciation, which may artificially inflate earnings reports.

The Nvidia Thesis

Michael Burry’s case against Nvidia rests on examining how the chipmaker funds its largest customers. If the AI infrastructure bubble deflates, a domino effect would follow: lower reported profits, falling stock prices, and reduced future sales. Burry positioned put options worth approximately $10 million that could exceed $1 billion if Nvidia drops roughly 37%—from its current $190 level to around $110 by 2027.

Nvidia has firmly rejected these accusations, issuing a statement asserting that its underlying business remains economically sound with transparent reporting. Yet the company’s rapid price appreciation has fueled skepticism among contrarian investors.

Palantir: Government Dependence and Executive Overcompensation

Burry’s bearish bet on Palantir stems from different but interconnected concerns. The software company relies heavily on government contracts with notoriously thin margins, faces intensifying competition from established tech giants like IBM, and allocates excessive compensation packages to executives. Michael Burry calculates his Palantir position would profit if the stock retreats from $200 to $50 by 2027.

Palantir’s CEO Alex Karp dismissed Burry’s critique on CNBC, accusing him of market manipulation. This defensive posture suggests the company takes his warnings seriously, despite the public rebuttal.

Newsletter Amplifies the Message

After closing his hedge fund, Burry launched “Cassandra Unchained” on Substack, rapidly attracting 171,000 subscribers willing to pay $379 annually—modest compared to premium financial newsletters charging over $1,000 yearly. The newsletter’s quick ascent signals appetite for alternative market perspectives, even among skeptics.

The Timing Problem and Mixed Record

One structural challenge undermines Burry’s predictive track record: he has historically entered positions too early. During the dot-com bubble’s decline, his timing cost him significantly. More recently, his January 2023 “SELL” recommendation preceded a 70% S&P 500 gain over the following months—a call he has acknowledged as incorrect.

Skeptics on social media jest that Burry has predicted 20 of the last two recessions. Yet Michael Green, chief strategist at Simplify Asset Management, notes that timing remains the critical unknown. How quickly the AI infrastructure corrections materialize—if at all—remains unclear. Some market participants argue that awareness of bubble concerns has paradoxically strengthened conviction among growth investors, convincing them that equities can rise indefinitely.

What’s at Stake

The $5 trillion combined value of Nvidia and Palantir represents enormous leverage for Burry’s thesis. If his conviction proves prescient, these positions could generate exceptional returns. If wrong, they demonstrate again that identifying bubbles differs vastly from profiting from them.

Michael Burry’s latest wager represents more than personal investing—it reflects deeper structural concerns about whether enthusiasm for AI has outpaced the economic capacity to justify valuations. Whether this positioning becomes vindicated or misguided will likely define his investment legacy for the coming decade.