Famed ‘Big Short’ investor is now betting against Palantir and Nvidia
Michael Burry, the hedge fund manager who bet against the US housing market ahead of the 2007-08 financial crisis, has now set his sights on two of the hottest tech companies in the world.
Burry disclosed in 13-F filings with the Securities and Exchange Commission on Monday that his hedge fund Scion Asset Management has taken out put options on Palantir (PLTR) and Nvidia (NVDA), betting that the stock prices for the two tech giants are going to fall.
Burry has shorted five million shares against Palantir and one million against Nvidia.
Nvidia has risen nearly 48% this year and 46% over the past 12 months. Palantir has surged 152.2% YTD and 360.6% over the last 12 months.
Burry rose to fame when he recognized that the US housing boom of the 2000s was fueled by high-risk subprime loans sold to homeowners and then bundled by Wall Street into mortgage-backed securities (MBS).
Betting that rising interest rates were about to cause many of these subprime owners to default on their loans, Scion created a credit default swap market for MBSs in order to place a massive bet against them.
Burry’s short, which exceeded $1 billion, made a $700 million profit for Scion's clients and a $100 million profit for himself.
The collapse of the mortgage-backed security market was one of the main catalysts for the financial crisis that extended into 2009, but with a recession that lasted for several more years.
The story about the people who bet against the housing market was the basis for Michael Lewis’ book “The Big Short,” which was later turned into the movie of same name with the actor Christian Bale portraying Burry.
Last week, Burry posted a screenshot of Christian Bale from “The Big Short” on X with a message that seemed to hint at his subsequent put options.
“Sometimes, we see bubbles. Sometimes, there is something to do about it,” Burry wrote. “Sometimes, the only winning move is not to play.”
Skyrocketing valuations are raising concerns
Palantir’s stock actually plunged nearly 8% on Tuesday despite posting record revenues in its third-quarter earnings on Monday, far exceeding analyst expectations.
While Wall Street remains overwhelmingly bullish on the company’s growth prospects, analysts appear to be getting somewhat skeptical about its soaring valuation compared to other software companies.
Mizuho analysts, led by Gregg Moskowitz, maintained a Neutral rating and reiterated their $165 price target following Palantir’s latest earnings.
Moskowitz acknowledged that Palantir’s execution this year “has been stunning,” with “material upward revisions” across both its commercial and government businesses.
“That said, the stock’s multiple remains extreme, dramatically above anything else in software,” Moskowitz added.
He suggested that “the shares could suddenly be subject to material multiple reversion at some point over the next few quarters.”
Prior to the company’s latest earnings, RBC Capital analysts, led by Rishi Jaluria, maintained their Underperform rating and reiterated a $45 price target.
“We cannot rationalize why Palantir is the most expensive name in our software coverage,” Jaluria wrote. “Absent a substantial beat-and-raise quarter elevating the (near-term) trajectory, valuation seems unsustainable.”
To be sure, Palantir did in fact significantly beat expectations and also raised its yearly outlook for the third-straight quarter, but it remains to be seen if it was enough to sway Jaluria.
Not all analysts are scared off by Palantir’s soaring valuation. Piper Sandler analysts, led by Clark Jeffries, maintained an Overweight rating and raised its price target to $201 from $182.
Jeffires noted that the company’s current valuation “leaves no margin for error, particularly if any signs of moderating growth emerge.”
However he added that Palantir “has not reached peak growth & therefore we do not see a catalyst to halt current momentum.”
As for Nvidia, Burry’s bet against it appears to be much riskier, but the chip giant’s shares did fall nearly 4% on Tuesday and has been down 1.2% since becoming the first company to reach a $5 trillion market cap.