Michael Barry attends the premiere of ‘The Big Short’ at the Ziegfeld Theater on November 23, 2015 in New York City.
Dimitrios Cambris | Getty Images
Michael Varley is bringing forward his bearish paper on the fate of the artificial intelligence boom.
The investor, who is famous for being heavily shorted in the U.S. housing market before the 2007-2009 global financial crisis, has switched from short positions in major AI stocks to put options, giving him more cost-effective leverage over shorter periods of time, he said.
“We are basically trying to bring the schedule forward,” Barry wrote in his investment newsletter on Monday. “So we want to leverage more on our short positions. As the timeline improves, leverage becomes more comfortable. Nothing says leverage like an option, in this case a put option, which is relatively cheap due to very tough volatility metrics like VIX.”
He said some of these moves were aimed at reducing tax liability, but most were due to the belief that “the AI bubble may burst sooner or later.” Berry’s new put-heavy positions suggest that AI trading could turn around by next summer.
he exchanged his things micron Short a put with a June expiration date and a $500 strike price. he exchanged his things Nevius Short a put expiring in June within the “double-digit strike price” range. and he took his place socks The iShares Semiconductor ETF’s short position in September 2027 is “lower $400.”
Micron since the beginning of the year.
He also “traded and rolled” Palantir “Short and expand your put position into a put position” is centered around the September 2027 expiry in the low $100s.
Burry cited recent research from Ares Management that highlights the dangers of relying on unproven returns in the AI space structured by demanding legal agreements.
“It would only take one season for AI’s revenue to disappoint the capital expenditures that underwrite it. In that scenario, a small board of directors, which is inclined to reallocate capital to the most guilty bets, would only have to conclude that the most guilty bets have changed. The legal documents reflect that decision,” the Ares report states.
Nasdaq Composite year-to-date
Berry’s recent moves suggest he is becoming increasingly bearish on AI trade. Earlier this month, he increased his short positions in Micron, Nevius and SOXX.
He quoted Acer CEO Jason Chen, who told Taiwanese media that cyclicality is set to return to the memory chip sector as China’s production capacity increases.
CEO Jason Chen was quoted as saying, “How can supply shortages continue? China’s production capacity has been consistently increasing, and there is no problem of supply shortages. Currently, contract prices are fluctuating at a high level, with some going up and some going down.”
Bally has been bearish for some time this year, but the stock continues to climb toward new highs. Mr. Berry said in May that stocks “feel like the last few months of the 1999-2000 bubble.” The Nasdaq Composite closed at an all-time high last week.
However, many tech stocks remain well off their highs. Micron is 16% below its all-time high, while Palantir is about 10% below its all-time high.
