The Nasdaq Composite index experienced its most significant decline since April, largely influenced by the bearish positions taken by hedge fund manager Michael Burry against leading artificial intelligence stocks, Nvidia and Palantir. This past week, the S&P 500 and Nasdaq Composite both saw decreases of approximately 1.6% and 3%, respectively, with the Dow also dropping over 1%. The last time the Nasdaq faced such turmoil was in response to former President Donald Trump’s announcement regarding “reciprocal tariffs.”
The catalyst for investor concern emerged from Burry’s filing with the Securities and Exchange Commission (SEC), revealing that his Scion Asset Management fund had taken bearish positions on the high-profile AI companies Nvidia and Palantir in the third quarter. Burry’s SEC 13F Form was submitted after market hours on Monday and triggered a notable market response starting Tuesday.
Burry, recognized as a keen market forecaster for his successful predictions prior to the financial crisis of 2007-2008, is viewed by many as an authoritative figure in investment decisions. His previous short sales during the subprime mortgage crisis earned him considerable respect and financial success, leading many investors to take notice of his latest moves.
Although reports indicated that Burry “shorted” Nvidia and Palantir stocks, his strategy involved purchasing put options rather than traditional short selling—both approaches reflect a bet on stock depreciation. In the third quarter, Burry acquired 1 million Nvidia put options, amounting to an underlying stock value of $186.6 million. In contrast, his bearish stance on Palantir was more pronounced, acquiring 5 million put options valued at $912.1 million.
This SEC Form 13F filing provides a snapshot of Burry’s investment holdings, but specific details, including transaction dates, costs, and expiration dates for the put options, remain undisclosed. Alongside these put options, Burry’s fund held six additional stocks, valued at approximately $283 million at the end of Q3, which included major players like Pfizer and Halliburton.
In terms of market performance, Nvidia’s stock fell by 7.1% over the week, while Palantir faced a sharper decline of 11.2%. Both stocks peaked on Monday before experiencing significant drops following the news of Burry’s bearish strategy. From Tuesday to Thursday alone, Nvidia’s shares decreased by 9.1%, and Palantir’s stock dropped by 15.5%. However, by Friday, both stocks showed signs of stabilization, with Nvidia marginally rising by 0.04% and Palantir gaining 1.6%.
The downturn initiated by Burry’s revelation may have shaken out some investors who felt uncertain about their holdings in these companies. Observers have noted that this significant market reaction could mean that the immediate “Burry effect” has waned.
For those investing in Nvidia and Palantir, it may be prudent to uphold pre-existing positions, whether bullish, neutral, or bearish, without being overly influenced by the market fluctuations triggered by prominent hedge fund managers. It is imperative to recognize that billionaire investors do not always have a superior stock-picking acumen, as recent performances from major hedge funds have not consistently outperformed the market. Moreover, hedge fund managers often harness their influence to shape investor sentiments through public disclosures and media appearances, which can lead to a self-fulfilling prophecy in stock movements.
While there may be concerns regarding Burry’s bearish outlook on Nvidia, it’s crucial to evaluate such claims critically, particularly without additional context such as contract expiration dates before making conclusions about Palantir. Investors are advised to stick closely to their strategies rather than react impulsively to headlines.
