Michael Burry is becoming increasingly aggressive with his bearish tone about the AI rally. He’s mainly targeting Nvidia (NASDAQ:NVDA) and Palantir (NASDAQ:PLTR). Scion Capital Management (before it was deregistered) gave investors a glimpse into just how large his bet was. Many bulls rejoiced when the hedge fund was deregistered, thinking that Burry had finally capitulated, but this may not be the case. It instead looks like he’s trying to repeat the same 2008 playbook, as he had also deregistered the original Scion Capital back then.
Scion’s Q3 disclosure showed put options on 1 million NVDA shares, with put options on 5 million PLTR shares. A put refers to an options contract that allows the buyer to profit when share prices decline.
Palantir’s CEO, Alex Karp, called it a “bats–t crazy” move. Nvidia also responded to Burry’s tirade against AI, with Big Banks continuing to slap higher price targets on these companies.
Morgan Stanley recently raised its price target on PLTR stock to $205 from $155. Bank of America raised its PT to $255. For NVDA stock, Morgan Stanley put a $235 price target, with many other firms having their price targets well above $200.
So who’s actually right? Let’s take a look at why Michael Burry is betting against these companies while Wall Street still seems largely optimistic about them.
Burry the forever bear, or is this time different?
Burry has made on-and-off bearish bets against the stock market multiple times in the recent past. He made several comments against tech stocks, with a sudden one-word tweet saying “Sell” back in January 2023.
Burry admitted he was wrong back then, as the market has shown no sign of slowing down. Wall Street is bidding up these stocks as their financial statements show they’ve been making a killing. So what’s Burry’s excuse this time?
His rationale does have more substance today than it did in 2023. Stocks like NVDA and PLTR are far more expensive today. Palantir specifically looks vulnerable. PLTR stock trades at extreme valuations today that haven’t been seen in a big-cap company since the Dot Com bubble.
Burry said in late October, “Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play.” He has evidently done something about it this time.
What’s Burry’s rationale for selling Palantir?
His rationale for selling both Palantir and Nvidia falls into the same pot: AI is a bubble. However, he has different arguments about why each stock is a sell at the moment.
Let’s start with Palantir.
Burry believes Palantir is simply too expensive. He has not said anything about the business itself. Palantir is undoubtedly a quality business, but what you’re paying for it is his problem.
And he is right to a large extent. You’re paying 180 times 2026 estimated earnings and over 250 times 2025 earnings. When the market is in a good mood, this is sustainable, but rarely does this end well in a bear market. The price-sales ratio is unprecedented, too. You’re paying over 98 times the 2025 estimated sales and almost 70 times the estimated 2026 sales.
Burry compared Palantir to DiamondCluster, a hyped-up consulting firm that was soaring in the 2000s but then fizzled out. He also said OpenAI is today’s Netscape.
Why is Burry selling NVDA stock?
Burry does not say much about Nvidia’s earnings multiples, but he has a lot to say about the company’s products and fundamentals. First things first, though, NVDA stock does give you more bang for your buck than most other AI stocks. You are only paying 25 times forward earnings (for the next fiscal year). This is an even lower multiple than what you pay for Advanced Micro Devices (NASDAQ:AMD) or Intel (NASDAQ:INTC). Both of those companies have far worse growth metrics.
Is this just fearmongering, or is the market worried about something else? Burry believes it is because Nvidia’s products are not going to see sustained demand over the long run. Furthermore, he accused the company of artificially inflating its earnings.
Burry says Nvidia’s stock-based compensation has cost shareholders $112.5 billion, essentially “reducing owner’s earnings by 50%.” He has suggested that AI companies are cooking their books by slow-walking depreciation on equipment that’s losing value fast.
Plus, he says AI customers are basically funded by the same vendors selling them equipment, describing it as a circular financing scheme.
Nvidia responded to his claims by saying that he miscalculated repurchases at “$112.5 billion” by incorporating RSU taxes. Excluding it, actual buybacks are at $91 billion since 2018. Moreover, Nvidia believes GPUs have much longer lifespans as customers depreciate over 4 to 6 years based on usage. This is true, as Nvidia is still seeing huge demand for older GPUs, and regular software updates are keeping them surprisingly relevant.
Burry said Nvidia’s response had “straw man arguments” and that the company is what Cisco (NASDAQ:CSCO) was in the 2000s, the company that sold the “picks and shovels” for the internet boom, but then quickly faded.
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