Michael Burry, the "big short seller," believes the AI bubble may burst "earlier than expected," and suggests using put options to replace short positions and increase leverage.

Michael Burry, the "big short seller," believes the AI bubble may burst "earlier than expected," and suggests using put options to replace short positions and increase leverage.

"Big Short" Michael Burry is accelerating his bets on the bursting of the AI bubble—and he believes the market has less time left than he previously anticipated.

In his investment newsletter released on September 28, Burry wrote: "Essentially, I'm moving the timeline forward."

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

This move sends a clear signal: Burry believes the inflection point for AI trading could arrive as early as next summer.

Why switch to options? Higher leverage, lower costs.

In his Substack investment newsletter, Burry wrote: “Fundamentally, I’m moving the timeline forward. Therefore, I’m looking for greater leverage in short positions. Shorter timelines make leverage more acceptable. And when it comes to leverage, nothing is more suitable than options—in this case, put options , which are currently relatively cheap due to the unusually narrowing volatility indicators such as the VIX.”

Specific operations:

  • Replace Micron's short position with put options expiring in June with a strike price in the $500 range ;
  • Replace the short position in Nebius with a put option expiring in June with a strike price in the double digits range ;
  • Replace the short position in SOXX with a put option expiring in September 2027 with a strike price of just over $400 ;
  • The short and put option positions in Palantir were consolidated and expanded, focusing on options expiring in September 2027 with a strike price of just over $100 .

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

Burry added that some of the portfolio adjustments were driven by considerations of reaping tax losses, but emphasized that "most of the adjustments were motivated by research conducted over the weekend." This research led him to believe that "the AI bubble may burst sooner than expected."

"AI capital expenditures are based on unproven assumptions"

Burry's accelerated bearish stance was based on a research report from Ares Management.

The report points out that the current AI boom relies on the assumption of "continuous AI capital expenditure," an assumption that has not yet been validated by actual revenue, and that the relevant legal agreements are structurally stringent. The report states:

A single quarter's disappointing AI revenue fails to justify the underlying capital expenditure logic. In that scenario, a small board—already inclined to redeploy capital to the highest-confidence bets—simply concludes that the highest-confidence bets have been shifted. Legal documents presuppose this decision.

Burry also quoted Acer CEO Jason Chen, who stated in an interview with Taiwanese media that the cyclical nature of the memory chip industry will return as China's production capacity continues to expand.

Jason Chen was quoted as saying, "How could there be a continuous shortage? China's production capacity has been continuously increasing, so there is no shortage problem at all. Contract prices are currently fluctuating at high levels, with some prices rising and some falling."

I remain bearish this year, but the market is still hitting new highs.

This is not the first time Burry has issued a warning this year.

In May of this year, he stated that the stock market "feels like the last few months of the 1999-2000 bubble." Earlier this month, he also increased his short positions in Micron, Nebius, and SOXX.

However, the market did not cooperate with his prediction. The Nasdaq Composite Index closed at a record high last week.

However, some tech stocks are still some distance from their peaks. Micron is about 16% below its all-time high, while Palantir is about 10% below its all-time high.

In addition to AI-related portfolio adjustments, Burry also opened a new position unrelated to AI—shorting MetLife (MET) using a multi-year LEAP put option with a strike price of around $70.

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