A notable figure from the 2008 financial crisis has resurfaced with a significant bearish position. Michael Burry, the hedge fund manager famous for his profitable bet against the U.S. housing market, has established a substantial put options position against Nvidia during the third quarter. This move against the AI chip leader raises a critical question for investors: is this a prescient warning, or a miscalculation of a powerful technological trend?
Sector-Wide Sell-Off Drags Tech Shares Lower
The timing of Burry’s trade coincides with a notable downturn for the technology sector. On Friday, Nvidia shares declined by 3.6%, pushing the stock more than 10% below its record high from late October. This drop was part of a broader market retreat, with the Nasdaq Composite falling 2.29% and the S&P 500 dropping 1.66%.
Several factors are contributing to the current market weakness:
- Rising skepticism regarding the sustainability of artificial intelligence expenditures
- Stretched valuations among major technology companies
- A more pessimistic outlook for U.S. interest rate policy
- A market rotation away from growth stocks and into value-oriented assets
The situation is particularly acute for Nvidia, which now comprises approximately 8% of the S&P 500 and about 10% of the Nasdaq 100. Consequently, any significant movement in its stock price has a pronounced effect on the broader indices.
Scrutiny on the AI Investment Boom
Michael Burry is not a typical investor, and his track record commands attention. His decision to build a put position against Nvidia forces the market to confront an uncomfortable possibility: that the AI hype may be overextended. The sustainability of massive infrastructure spending by hyperscalers like Microsoft and Amazon is now under intense scrutiny. Can these corporations maintain their current aggressive investment pace?
Should investors sell immediately? Or is it worth buying Nvidia?
Market participants are increasingly demanding concrete evidence of profitability from AI investments, moving beyond mere growth narratives.
Quarterly Earnings Report Looms Large
Nvidia is scheduled to report its third-quarter financial results on November 19th. Wall Street anticipates earnings per share of $1.25, a 54% increase from the prior year, and revenue of $54.83 billion, representing 56% growth. However, the company’s forward guidance will likely be the most critical component of the report.
Analyst expectations have risen sharply; since May, revenue projections for fiscal year 2027 have been lifted by 15% to approximately $285 billion. Despite the recent share price weakness, some market experts remain optimistic. Oppenheimer raised its price target from $225 to $265, while Susquehanna lifted its target from $210 to $230. Both firms cited Nvidia’s enduring dominance in the AI chip market as the primary reason for their confidence.
The central question for investors remains: Is Michael Burry’s famous intuition correct once again, or has he underestimated the powerful, long-term momentum of the AI megatrend? The answer may become clear in a matter of days.
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