'Big Short' Michael Burry: AI Bubble May Burst 'Sooner Than Expected,' Swaps Shorts for Put Options to Boost Leverage

Michael Burry hinted that the AI bubble could burst as early as next summer, and he has replaced all his short positions in Micron, Nebius, the SOXX semiconductor ETF, and Palantir with put options to gain lower-cost, higher-leverage short exposure. He believes the AI boom rests on the unproven assumption of "sustained capital expenditure," and once revenue disappoints, capital will quickly flee.

"Big Short" investor Michael Burry is accelerating his bet on the AI bubble bursting—and he thinks the market has less time than he previously estimated.

Burry wrote in his investment newsletter published on Sept. 28: "Fundamentally, I am pulling the timeline forward."

He then converted all his short positions in Micron, Nebius, the SOXX semiconductor ETF, and Palantir into put options. The options on Micron and Nebius expire next June, while those on Palantir and SOXX extend to September 2027.

This positioning sends a clear signal: Burry believes the inflection point for the AI trade could arrive as soon as next summer.

Why shift to options? Higher leverage, lower cost

Burry wrote in his Substack investment newsletter: "Fundamentally, I am pulling the timeline forward. Therefore, I want more leverage in my short positions. A shorter timeline makes leverage more acceptable. And when it comes to leverage, nothing beats options—in this case, put options, which are relatively cheap right now because volatility measures like the VIX are unusually compressed."

Specifically:

He swapped his Micron short for put options expiring in June with strike prices in the $500 range;

He swapped his Nebius short for put options expiring in June with strike prices in the double digits;

He swapped his SOXX short for put options expiring in September 2027 with strike prices just above $400;

He combined and expanded his Palantir short and put option positions, focusing on September 2027 expirations with strike prices just above $100.

He said, "As of today, put options have completely replaced my short positions."

Burry added that some of the repositioning was driven by tax-loss harvesting considerations, but stressed that "most of the repositioning was driven by research over the past weekend." That research led him to believe: "The AI bubble may burst sooner than expected."

"AI capex is built on an unproven assumption"

Burry's accelerated bearishness this time cites a research report from Ares Management.

The report notes that the current AI boom depends on the assumption of "sustained AI capital expenditure," an assumption that has not yet been validated by actual revenue, and that the related legal agreements are structured harshly. The report states:

It would take just one quarter of disappointing AI revenue to undermine the capex logic behind it. In that scenario, a handful of boards—already inclined to redeploy capital to their highest-conviction bets—would simply conclude that the highest-conviction bet has shifted. The legal documents already anticipate that decision.

Burry also cited remarks by Acer CEO Jason Chen. In an interview with Taiwanese media, Chen said that as Chinese production capacity continues to expand, the memory chip industry's cyclicality will return.

Chen was quoted as saying: "How can there be a persistent shortage? China's capacity has been continuously increasing, so there is no shortage at all. Contract prices are currently fluctuating at high levels—some prices are rising, some are falling."

Bearish all year, but the market keeps hitting new highs

This is not Burry's first warning this year.

In May, he said the stock market "feels like the last months of the 1999-2000 bubble." Earlier this month, he reportedly added to his short positions in Micron, Nebius, and SOXX.

However, the market has not cooperated with his view. The Nasdaq Composite closed at a record high last week.

Still, some tech stocks remain well off their highs. Micron is still about 16% below its all-time high, while Palantir is about 10% below its record high.

Beyond AI-related repositioning, Burry also opened a new position unrelated to AI—shorting MetLife (MET) using "multi-year LEAP put options with strike prices just above $70."