Michael Burry Maintains AI Stock Shorts as He Warns of a 1987-Style Selloff

Key takeaways

• Hedge fund manager Michael Burry has reiterated short positions in Nvidia, Palantir, Micron Technology and the iShares Semiconductor ETF.

• Burry said recent calls to slow advanced AI development could reflect genuine weakness in economic and business growth.

• AI demand remains strong, but high valuations, costly infrastructure spending and rising macroeconomic risks could drive a sharp correction.

Investors have followed hedge fund manager Michael Burry’s trading decisions for years. He first drew widespread attention by identifying weaknesses in the U.S. housing market in the early 2000s and placing bets against the mortgage market, strategies that helped generate about $700 million for his clients. His story was later adapted into the film The Big Short.

Burry is known for independent research and his willingness to take contrarian positions. Over the past year, he has built substantial short positions in AI-related stocks, including companies that have helped lift the S&P 500. In an August Substack post, he said his shorts in Nvidia, Palantir and other AI names remained in place and warned that the broad market rally could give way to a decline resembling the 1987 crash.

Image source: Getty Images.

His warnings raise an important question: should investors follow Burry by shorting AI stocks, or focus on high-quality companies with strong long-term prospects despite near-term volatility?

The role of AI stocks in this bull market

The S&P 500 has advanced over the past three calendar years and into the present. During much of this bull market, investors bet that AI would transform business operations and accelerate corporate earnings. Lower interest rates also provided support for growth stocks and consumer spending.

That momentum has periodically faced headwinds. Investors have questioned whether massive spending on AI data centers and other infrastructure is excessive or moving too quickly. Higher inflation and geopolitical turmoil in Iran have also weighed on sentiment, while concerns about expensive valuations have intensified. The S&P 500’s Shiller CAPE ratio—an inflation-adjusted measure of price relative to earnings—has reached a level surpassed only during the dot-com bubble.

AI stocks have continued to rise, although many are no longer advancing at their previous pace. Nvidia, for example, is positioned for an annual gain even though its shares declined during the first quarter.

Michael Burry’s view of AI stocks

In early August, Burry reiterated short positions in Nvidia, Palantir, Micron Technology and the iShares Semiconductor ETF. He also suggested that the market’s broad advance could set the stage for a downturn comparable to the crash of 1987.

This week, on X, Burry responded to reports that Anthropic and other AI leaders are calling for a slower pace of model development to address safety concerns. He wrote that the move was a “cover for real uncontrollable slowing growth.”

For investors, the key issue is whether these warnings signal a near-term peak or simply highlight the risks that already accompany fast-growing, heavily valued companies. Shorting powerful AI businesses can be difficult even when valuation concerns are valid, particularly if earnings and demand continue to exceed expectations.

Strong demand supports the long-term case

A complete exit from AI stocks may be difficult to justify while demand remains robust. Companies ranging from chip designers to cloud providers continue to report strong customer demand, supporting substantial earnings growth. As AI tools are adopted across more real-world applications, leading companies could continue to benefit.

Near term, however, elevated valuations, infrastructure costs, inflation and geopolitical uncertainty could keep volatility high. AI stocks may therefore deliver slower gains than they posted in recent years. Investors should evaluate long-term business prospects and be prepared to hold quality companies through periods of weakness rather than focus solely on short-term price moves.

Cautious investors do not need to buy every AI-related stock, and waiting for better prices can be reasonable. Those comfortable with volatility may still find selective opportunities in established companies with durable demand, strong balance sheets and credible paths to turning AI investment into profits.

Burry’s bearish stance is a useful reminder that even dominant sectors can become vulnerable when expectations run too high. Investors should base decisions on their own time horizon, risk tolerance and assessment of fundamentals—not on any single investor’s trades.

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