Hedge fund manager Michael Burry has 66% of his $1.4 billion portfolio in put options on Palantir, and another 14% of his portfolio is invested in put options on Nvidia.

Palantir is a leader in artificial intelligence (AI) decisioning platforms, and Nvidia is the gold standard in AI accelerators and networking equipment.

The S&P 500 recorded a CAPE ratio above 39 in October, an extreme valuation that has historically correlated with a 30% decline in the next three years.

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Hedge fund manager Michael Burry made a billion-dollar bet against subprime mortgage-backed securities during the housing bubble that contributed to the financial crisis in 2008. He persuaded several major banks to create and sell credit default swaps, essentially insurance policies that offer protection against credit events.

Those insurance policies paid out big when the housing bubble burst. Borrowers defaulted on their mortgages en masse, rendering the underlying subprime mortgage-backed securities worthless, and Burry turned an $800 million profit. His story was profiled in the 2010 book The Big Short: Inside the Doomsday Machine, as well as in the 2015 movie The Big Short.

Burry recently shook the market with another big short position, this time betting against two popular artificial intelligence (AI) stocks. His hedge fund (Scion Capital Management) has 66% of its $1.4 billion portfolio in put options on Palantir Technologies (NASDAQ: PLTR) and another 14% of its portfolio in put options on Nvidia (NASDAQ: NVDA).

Investors purchase put options when they expect a stock to decline, so Burry is betting over $1 billion that shares of Palantir and Nvidia are headed lower, which is tantamount to a bet against the artificial intelligence boom. Here’s what investors should know.

Image source: Getty Images.

The artificial intelligence (AI) boom began in earnest when OpenAI introduced ChatGPT in November 2022. It hit 100 million monthly users within two months, making it the fastest-growing consumer application in history. Since its launch, shares in Palantir and Nvidia have advanced 2,000% and 1,300%, respectively.

Palantir is particularly popular with retail investors, many of whom admire CEO Alex Karp for his criticisms of Wall Street. The company has become a cornerstone of the AI trade since its Artificial Intelligence Platform (AIP) launched in April 2023. Chief Technology Officer Shyam Sankar says Palantir has a key moat in its software architecture, which positions Palantir to uniquely “deliver on AI demand.”