Key facts
- Michael Burry's Minerva Investment Management is launching a new fund targeting private credit risks.
- Burry believes an AI bubble is likely to burst sooner than previously expected, potentially within the next year.
- He has shifted his short positions from outright shorts to bearish put options on several AI-related stocks and ETFs.
- The put options purchased by Burry have strike prices significantly below current market levels and expire between June and December of next year.
- Burry cited unsustainable spending on data centers and rising interest rates as key factors contributing to potential AI sector distress.
Michael Burry, the investor known for predicting the 2008 financial crisis, is launching a new fund through his firm Minerva Investment Management. This fund will focus on shorting private credit risks, reflecting Burry's increasing concern about market instability.
Burry has also expressed heightened conviction that the current artificial intelligence bubble is poised for a significant downturn, moving his predicted timeline for an "AI reckoning" to 2027, sooner than his previous estimate of 2028. He stated he is "more confident than ever" that his pessimistic thesis will play out.
To capitalize on this view and increase leverage, Burry has adjusted his shorting strategy. He has covered his outright short positions and replaced them with bearish put options. These contracts provide the right, but not the obligation, to sell an asset at a predetermined price, offering a way to profit from a decline.
The specific targets for these put options include major AI-related companies such as Nvidia, Palantir, Micron, Nebius, and Oracle, as well as Caterpillar. He has also taken positions on the iShares Semiconductor ETF and the Nasdaq 100 index, with expiration dates ranging from June to December of next year. Burry has also closed his short on CoreWeave, planning to re-enter with puts when pricing is more attractive, and has initiated new put positions on MetLife.
Burry's rationale for his bearish outlook on the AI sector centers on what he perceives as unsustainable borrowing and spending by AI companies to build data centers. He argues that this spending is increasingly financed by debt, making the sector vulnerable to rising interest rates. He believes that any slowdown in this spending could lead to a collapse, stressing the entire financing chain, including private equity, private credit, and insurers.