"Big short" Michael Burry: The AI bubble may burst "earlier than expected," replacing short positions with put options to increase leverage
Michael Burry suggested that the AI bubble could burst as early as next summer and has replaced all his short positions on Micron, Nebius, SOXX semiconductor ETF, and Palantir with put options to obtain lower cost and higher leveraged short exposure. He believes the AI boom is built on the unproven assumption of "sustained capital expenditure," and once revenues disappoint, capital will quickly flee.
"Big Short" Michael Burry is speeding up his bet on an AI bubble burst—and he believes the market has less time left than he previously expected.
Burry wrote in his September 28 investor newsletter: "Fundamentally, I am moving up the timeline."
He then converted all of his short positions in Micron, Nebius, the SOXX semiconductor ETF, and Palantir into put options. The options on Micron and Nebius expire in June next year, while the Palantir and SOXX options extend to September 2027.
This positioning sends a clear signal: Burry believes the turning point for AI trading may arrive as soon as next summer.
Why switch to options? Higher leverage, lower cost
Burry wrote in his Substack investor newsletter: "Basically, I'm moving the timeline forward. So, I want to get greater leverage in my short positions. A shorter timeline makes leverage more acceptable. Speaking of leverage, nothing's more suitable than options—specifically put options in this case, and due to unusually narrow volatility indexes like the VIX, option prices are relatively cheap now."
Specifically:
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Converted his Micron short position to June expiry put options with a strike price around $500;
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Converted his Nebius short position to June expiry put options with a double-digit strike price;
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Converted his SOXX short position to September 2027 expiry put options with a strike price a little above $400;
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Merged and expanded his Palantir short and put option positions, concentrated in September 2027 expiry options with a strike just above $100.
He stated, "As of today, put options have completely replaced my short positions."
Burry added that part of the rebalancing was for tax-loss harvesting, but he emphasized "the main motivation came from research last weekend." These studies made him believe: "The AI bubble may burst sooner than expected."
"AI capital spending is built on unproven assumptions"
Burry's accelerated bearish stance was informed by a research report from Ares Management.
The report points out that the current AI boom relies on the assumption of "continued AI capital expenditure," which has yet to be validated by actual revenue and is governed by strict legal agreements. The report writes:
All it takes is one quarter of disappointing AI revenues to break the underlying logic for capital expenditure. In that scenario, a few boards—which already tend to redeploy capital toward the highest-confidence bets—only need to conclude that the highest-confidence bet has shifted. The relevant legal documents have already set the terms for this decision.
Burry also quoted Acer CEO Jason Chen. In an interview with Taiwanese media, Jason Chen stated that as Chinese production capacity continues to expand, the cyclical nature of the memory chip industry will return.
Jason Chen was quoted as saying: "How could there be a sustained shortage? China's production capacity continues to increase—there is simply no shortage issue. Contract prices are currently fluctuating at high levels, with some prices rising, some falling."
Bearish all year, yet the market keeps hitting highs
This is not the first time this year that Burry has issued a warning.
In May, he said that the stock market "feels like the final months of the 1999-2000 bubble." Earlier this month, he also increased his short positions in Micron, Nebius, and SOXX.
However, the market has not agreed with his judgments. The Nasdaq Composite Index closed at a record high last week.
Still, some tech stocks remain below their peaks. Micron is still about 16% below its all-time high, and Palantir is about 10% off its record high.
Apart from AI-related portfolio moves, Burry also established a new position not directly related to AI—shorting MetLife (MET), using "LEAP put options with several years to expiry and a strike just above $70".
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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