Burry Maintains Short Stance on Nvidia, Tesla Amid AI Volatility

Michael Burry has maintained short positions in Nvidia, Palantir, and Tesla, warning that the current artificial intelligence boom risks triggering a collapse comparable to the 1987 crash. The investor, known for his role in The Big Short, argues that rising equity prices force funds into deeper leverage, creating a volatile environment where margin calls could accelerate a sharp downturn.

Burry’s thesis centers on the mechanics of leveraged ETFs and margin debt. As Nvidia rallies, funds like the GraniteShares 2x Long NVDA Daily ETF are compelled to buy more shares, amplifying price movements. With total margin debt up 50% year-over-year in June, the market faces a structural risk where forced selling by leveraged investors could turn minor corrections into severe sell-offs, regardless of underlying company performance.

Leverage Drives Recent Market Volatility

The dangers of high leverage were recently illustrated by the liquidation of Situation Awareness, a hedge fund managed by Leopold Aschenbrenner. The fund, which held highly leveraged bets on AI stocks, was liquidated almost overnight due to falling prices. This event highlighted how margin calls can force the sale of assets, impacting the broader market and causing slumps in AI stocks for weeks, even among investors who did not directly use leverage.

According to reports from GN stocks/nasdaq, this episode underscores the disconnect between long-term value and short-term liquidity. While most long-term investors can absorb a 20% dip, leveraged positions face immediate existential threats. The rapid unwind of these positions explains recent volatility in the sector, as the market digests the outsized impact of forced selling on growth stocks.

Fundamental Demand Supports AI Valuations

Despite Burry’s warnings, the AI sector is supported by tangible revenue and profit growth. Companies are seeing real demand for models like ChatGPT and Gemini, with physical applications such as humanoid robots and autonomous vehicles gaining traction. This stands in contrast to the dot-com era, where many firms lacked solid fundamentals or viable long-term growth prospects, making the current bubble comparison questionable.

The fundamental strengthening of the AI business case suggests that the margin unwind may present a buying opportunity rather than a systemic collapse. Patient investors with long-term horizons are less affected by the short-term leverage dynamics that Burry highlights, as the core value drivers remain intact and are expanding.

Burry's Track Record Remains Mixed

While Burry successfully predicted the 2008 recession, his subsequent warnings of market crashes have often not materialized. His strategy frequently relies on put options with finite expiration dates, causing him to think in months rather than years. This short-term focus has sometimes led to missed opportunities, such as his disclosed short position in Nebius Group in August, which followed a strong earnings report and a 20% price increase.

Burry may have profited from short-term volatility using options, but staying out of the market has historically hurt long-term returns for those who follow his bearish calls. His recent bets reflect a tactical view on leverage risks rather than a fundamental rejection of AI technology, highlighting the divergence between short-term market mechanics and long-term industry growth.