History repeating itself or pure coincidence? First Burry shorted, then Deutsche Bank hedged—"The Big Short 2.0" has truly reappeared!

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A scenario strikingly similar to the eve of the 2008 financial crisis seems to be unfolding amid the frenzy of artificial intelligence investment.

During the 2008 financial crisis, Michael Burry—the real-life inspiration for the movie “The Big Short”—became famous by shorting the housing bubble, while Deutsche Bank traders quietly marketed credit default swaps (CDS) to clients, allowing investors to hedge against risks in the real estate market.

Now, Michael Burry has publicly turned bearish and is making massive bets, with 80% of his portfolio heavily shorting Nvidia and Palantir. In turn, Deutsche Bank is considering shorting AI stocks to hedge against massive loan risks in the data center sector and is exploring similar hedging tools—only now the underlying assets have shifted from mortgage loans to AI data center loans.

These “coincidences” are playing out in direct fashion. Global regulatory agencies have issued warnings about an AI asset bubble. The Monetary Authority of Singapore has explicitly pointed out that technology and AI sectors display “relatively tight valuations,” warning that a reversal of market optimism could trigger a “sharp correction.” The Korea Exchange has also issued a rare “investment caution advisory” to chipmaker SK Hynix. Goldman Sachs and Morgan Stanley CEOs have issued warnings as well: U.S. stock valuations are too high and could see at least a 10% correction!

The “Big Short” issues another warning: 80% portfolio betting on an AI crash

Michael Burry, the investor who became famous for accurately predicting and shorting the U.S. subprime crisis, is now turning his warnings about the AI bubble into aggressive short positions. The latest regulatory filings show that about 80% of the holdings managed by his Scion Asset Management are concentrated in shorting Palantir and Nvidia, with a notional value exceeding $1 billion.

The filings reveal that Burry’s put options on Palantir have a notional value as high as $912 million, equivalent to 5 million shares; the put options on Nvidia have a notional value of $186 million. However, the filings do not disclose key details such as the actual premium paid, strike price, or expiration date of the options.

Before his holdings became public, Burry posted a cryptic message on social media, quoting a classic movie: “Sometimes we see a bubble. Sometimes you can act. Sometimes the only winning move is not to play.” He hinted that AI investment returns are too low, likening the situation to the excess capital expenditures on fiber optics during the Internet bubble—many leading companies in the current AI craze will ultimately collapse.

Burry’s strategy closely mirrors his approach prior to the subprime crisis. At that time, he used credit default swaps (CDS) as a tool to short the U.S. housing market amid widespread market optimism. Now, once again, he is turning his focus to the AI sector, widely seen as the epicenter of market mania.

However, it is worth noting that due to the continued rise in the share prices of both companies following the filings’ base date, Burry’s short positions are already facing significant paper losses. The market is watching closely to see whether this legendary investor can replicate his past success.

Deutsche Bank’s “two-pronged approach”: Lending on one hand, seeking hedges on the other

Driven by AI demand, data center financing has become a core bet for Deutsche Bank’s investment banking business. According to a senior executive at the bank, they have “heavily bet” on this sector. Deutsche Bank primarily provides loans to companies serving “hyperscale” tech giants such as Alphabet, Microsoft, and Amazon. These loans are usually secured by long-term service contracts that promise stable returns.

In recent months, Deutsche Bank has provided debt financing for Sweden’s EcoDataCenter and Canada’s 5C, helping them raise over $1 billion for expansion. While the bank did not disclose the total amount of loans made to this industry, estimates suggest it has reached several billion dollars.

However, according to the latest report by the Financial Times, risk-hedging discussions have emerged within Deutsche Bank under these circumstances. The options being evaluated by the bank cover two levels:

First, to directly short a basket of AI-related stocks to profit if the market falls; second, to use a type of derivative called Synthetic Risk Transfer (SRT) to package and sell part of the loans’ default risk to external investors.

This move has attracted much attention in the market, not only for its cautious stance but also for its historical resemblance. During the 2008 financial crisis, it was Deutsche Bank’s trader Greg Lippmann who promoted the creation of a massive CDS market, allowing investors to short real estate.

Some market observers have pointed out that the SRT structures Deutsche Bank is now considering—in their logic of pooling and tranching risky assets—“look and smell just like” the collateralized debt obligations (CDOs) of the past, inevitably invoking concern about the risks lurking underneath.

However, hedging AI risk is not easy. Shorting a basket of AI stocks in a persistently strong market is expensive. Synthetic risk transfer deals also face challenges, requiring a sufficiently diversified loan pool to earn a rating, and investors may demand higher returns to be willing to take on such risks.

Notably, Deutsche Bank analysts issued a report this September stating that concerns over an AI bubble are overblown, asserting that “the bubble about the bubble has already burst.” The contradiction in internal views underscores the complex situation major financial institutions face in the current market environment.

Risk Disclosure and DisclaimerThe market has risks, investment needs to be cautious. This article does not constitute personal investment advice, nor does it take into account the special investment goals, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their specific circumstances. Invest at your own risk. ```