Michael Burry Bet Against Nvidia and Palantir—Is it Time to Get Out?

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Dr. Michael Burry announced bearish bets on Palantir and Nvidia in the latest filing. If there is an AI bubble, Dr. Burry’s $1 billion in put options could pay off considerably. Still, investors shouldn’t overreact by selling all their stocks. Nvidia and Palantir shares do certainly look expensive, and Burry’s puts don’t make the bull case any easier to get behind when it comes to Nvidia and Palantir. Some investors get rich while others struggle because they never learned there are two completely different strategies to building wealth. Don’t make the same mistake, learn about both here.

Dr. Michael Burry, the brilliant investor and trader who bet against the housing market before the Great Financial Crisis market meltdown, recently disclosed his new positions, which include massive bets against notable AI high-flyers Nvidia (NASDAQ:NVDA) and Palantir (NASDAQ:PLTR). Undoubtedly, Dr. Burry is a genius who not only knows how to take a contrarian position but also knows how to make massive bets that some, including Palantir CEO Alex Karp, would consider "egregious" or even "bat---- crazy".

While he has been quite vocal about the state of the AI bubble in recent quarters, I think that actions speak a heck of a lot louder than words. And it doesn't really get louder than a $1 billion bet against two of the biggest forces in AI. Though Dr. Burry doesn't have a perfect batting average, I do think investor caution is warranted, especially when it comes to the market's pricier AI stocks.

Dr. Burry's big bearish bets might seem "crazy," but so, too, was his bet against housing before 2008

Whether the big bearish bets by Burry are a sign of dire things to come for the AI trade remains to be seen. Either way, investors should know where they stand relative to the brilliant investor behind The Big Short. Indeed, it seemed crazy to bet against housing before 2008 hit. However, when all was said and done, it was Dr. Burry and a few other bears who were proven to be geniuses.

While I wouldn't follow Dr. Burry by dumping all your AI stocks just because of his "Big Short" fame, I would consider taking a step back and ringing the register if you find that you're overexposed, should a vicious market correction or worse be in the cards at some point over the next year or two.

With two big banks earning a 10-20% correction at some point in the next two years while Warren Buffett's Berkshire Hathaway (NYSE:BRK-B) continues piling up the cash while foregoing share repurchases, I think it's only wise to consider not what could go right with the AI trade, but what could go wrong. In any case, there is certainly no shortage of yellow flags going up these days as the S&P 500 looks to finish off 2025 with more strength.

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And with more than $1 billion in massive bets ($187 million in put options on Nvidia and $912 million on Palantir) against two of the biggest winners in the market over these past few years, I do think it's time to rethink the stakes if you're still in the likes of an Nvidia or Palantir. Of course, these are great growth companies that have really been cashing in from the AI revolution, which, depending on who you ask, is still in the earlier innings of a nine-inning ballgame.

So, is there an AI bubble? And how bad could it get for Palantir and Nvidia shares? What about the rest of the market?

Although the concept of an AI bubble and comparisons to the dot-com era have been a hot topic lately, I wouldn't bet against the entire market or even the tech- and AI-heavy Nasdaq 100. Not only does nobody know when the AI names will turn, but even if they do, I believe that not all companies involved with AI are destined for the same amount of pain on the way down.

Personally, I think a name like Apple (NASDAQ:AAPL), which is described as being behind in the AI race, stands to be more secure in the face of an AI-focused sell-off. Additionally, Alphabet (NASDAQ:GOOG) still appears undervalued at 23.3 times forward price-to-earnings (P/E), given its dominance in AI with Gemini and its autonomous robotaxi service, Waymo, which is just rolling out. These magnificent companies are profoundly profitable. And AI just adds to their profitability growth prospects. The same cannot be said of the numerous AI startups out there.

Even for other mature AI companies that are massively profitable, the valuation and cyclical nature of their industries, I believe, represents a significant risk that Dr. Burry might have identified.

For instance, Palantir shares seem incredibly expensive today, at least based on my models. However, the same could have been said a year or two ago. Shares have since gone on to double up many times over. Still, just because an expensive stock gets more expensive doesn't make it justifiable to forget about valuation altogether, because it hasn't served one well.

The bottom line

I'm not betting on (or against) Palantir stock or Nvidia at this juncture, especially given the potential for a severe sell-off (or melt-up) based on what AI demand does over the near term.

As to whether one should get out of the stocks, Dr. Burry recently set his sights on, remains a personal decision. I guess it comes down to whether you think there's an AI bubble or not.

Bubble or not, is it really so bad to take a little bit of profit off a big winner? I think it's only smart. In any case, I also wouldn't bet against Palantir or Nvidia, especially since there's a serious risk that Burry is too early (he was technically early, betting against housing in 2005), even if he is right. When it comes to options, being too early can be just as painful as being completely wrong.

In any case, a fading of AI enthusiasm could mean extreme pain for the high-flyers, and perhaps to a lesser extent, pain for the far-cheaper tech titans with skin in the AI game as they're dragged down. In the meantime, I'm more than comfortable sitting on the sidelines to see how this one plays out.

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