Michael Burry Took Aim at Tesla Stock—Time to Hit the Panic Button?

Dr. Michael Burry has been quite vocal of late, thanks in part to the launch of his “Cassandra Unchained” commentary on Substack, which may very well allow the contrarian to be heard like never before. Undoubtedly, Dr. Burry is being heard loud and clear of late, with his commentary surrounding the state of the AI bubble and his bearish stances on a number of overvalued companies that have been driven higher on euphoric AI hopes.

With the man deregistering Scion so that he can become a full-time writer while concentrating on his own personal positions, I do think things are about to get that much more interesting for investors looking to play the AI trade. For those looking for great depth on Burry’s beliefs on the AI trade and the names that are in his crosshairs, I’d encourage you to keep listening to the man.

But just because he’s one of the most brilliant traders of our generation does not mean he can’t be wrong every now and then. Even the great Dr. Burry has made mistakes before. And while the magnitude of his wins has far exceeded his losses, I think most investors who aren’t willing to swing for the fences should proceed with caution, especially given that timing is such a hard art for options traders to master. As you may know, a winning thesis might not make you all too much if you’re too early to the game.

Run the risk of being too early, such that you exit before your thesis unfolds, and things could get really nasty. Either way, Dr. Burry recently had some things to say about Tesla (NASDAQ:TSLA) in his most recent note. It’s been making headlines, to say the least, with Burry commenting on the EV maker’s perceived overvaluation.

Dr. Burry calls out Elon Musk’s $1 trillion pay package, sees shares as overvalued

While Burry may be right about the overvaluation, Tesla stock is one of the names that is dangerous to short. And it’s defied the laws of gravity at times when it seemed like it’d be a perfect opportunity to buy put options. With Dr. Burry also warning about the $1 trillion pay package and the dilutive effect it’ll have on existing shareholders, I do think there’s plenty of food for thought for those looking to play Tesla and its 10-year (or so) run to shoot for an $8.5 trillion valuation, one that I thought had a somewhat realistic probability of happening.

In any case, Dr. Burry’s comments regarding compensation packages are bound to shine a light on the matter across big tech. I guess the big question for Tesla investors is whether a $1 trillion pay package will matter as much if the company can, in fact, hit its milestones, which entail a great deal of gain for investors willing to hold on for the ride going into the next decade.

If, at some point, the Tesla trade unwinds, with or without a vicious correction in the broader financial markets, there might be a good chance that the milestone ($8.5 trillion market cap) gets further and further out of reach. In any case, I think there’s no reason to hit the panic button just yet. Dr. Burry highlights a lot of items that DIY investors may have overlooked.

However, there really isn’t a smoking gun here that should have Tesla shareholders selling out of their entire positions. For the most part, I think the Tesla trade could continue to work despite the hefty multiple, especially given the potential catalysts in store for 2026.

Could a sell-the-news scenario be in the cards as the robotaxi rollout moves ahead?

It’s hard to tell. Tesla stock has always found a way to recover, thanks to the many who believe in Elon himself. To such investors, perhaps nothing else matters other than that Elon is running the show.

Either way, investors should be aware of the risks of owning a stock that, in my opinion, has a valuation that gets tough to justify, even under the stewardship of a legend like Elon Musk. At the same time, betting against the name here might also not be the best move, given the stock’s high degree of unpredictability to new developments. In any case, it’ll be interesting to hear how Musk responds should he choose to.