Michael Burry believes the AI bubble 'may burst' sooner than he first believed

Michael Burry is moving up the timeline for his bearish thesis on the fate of the artificial intelligence boom.

The investor, famous for his big short on the U.S. housing market prior to the global financial crisis of 2007 – 2009, is switching to put options from short positions on key AI stocks, giving him more cost-effective leverage over a shorter time horizon, he said.

"Fundamentally, I am moving timelines up," Burry wrote in his Monday investment newsletter. "As such, I want more leverage in my short positions. Better timelines make leverage more palatable. Nothing says leverage like options, in this case put options, which are relatively cheap due to exceptionally tight volatility measures such as the VIX."

Some of his moves were intended to reduce his tax liability, he said, but most of it was because he thinks "the bubble in AI may burst sooner than later." Burry's new put-heavy positions suggest the AI trade could flip by next summer.

He swapped his Micron short with puts at a June expiration date and a $500 strike price range. He swapped his Nebius short with puts at the June expiration in the "double digit strike price" range. And he replaced his SOXX iShares Semiconductor ETF short position with September 2027 puts "in the low $400s."

He also "replaced and rolled the Palantir short and put position into an enlarged put position" centered at a September 2027 expiration in the low $100s.

Burry cited recent research from Ares Management that emphasized the precarity of relying on unproven revenues in the AI space, structured with demanding legal agreements.

"It would take only a season in which AI revenue disappoints the capital expenditure underwriting it. In that scenario, a handful of boards, predisposed to redeploy capital toward the highest-conviction bet, would simply need to conclude that the highest-conviction bet has shifted. The legal documents contemplate that decision," the Ares report says.

Burry's latest moves imply he is growing increasingly bearish on the AI trade. Earlier this month he had increased his shorts on Micron, Nebius and the SOXX.

He cited Acer CEO Jason Chen, who told a Taiwanese media outlet that cyclicality was due to return to the memory chip sector due to increasing Chinese production capacity.

"How could there be a continuous shortage? China's production capacity has been consistently increasing, and there is absolutely no shortage issue. Contract prices are currently fluctuating at a high level, with some prices going up and others down," CEO Jason Chen was quoted as saying.

Burry has been bearish for a while this year, but stocks have continued to march to new highs. Burry said in May that equities were "feeling like the last months of the 1999-2000 bubble." The Nasdaq Composite closed at a record last week.

But many tech shares are still well off their highs. Micron is 16% below its record level, while Palantir is about 10% below its all-time high.