Michael Burry Bet Against the AI Revolution — Palantir Taught Him a Painful Lesson

Michael Burry has become a Wall Street legend thanks to his ability to identify bubbles before they burst. His famous bet against the US mortgage market, featured in the movie "The Big Short," made him one of the investors most associated with contrarian thinking.

Recently, Burry has been on the other side of one of the biggest debates in the market: Is the artificial intelligence revolution a real technological shift that justifies the high valuation of leading companies, or is it another bubble detached from economic reality?

At the center of this battle is Palantir.

Burry built a large bearish position against the company through put options. According to regulatory filings, at one point the exposure was equivalent to about 5 million Palantir shares, with a face value of about $912 million.

By the way, he also shorted shares of construction equipment manufacturer Caterpillar, which is surging today following its quarterly report.

It is important to emphasize: the $912 million is not the amount of Burry's investment, but the face value of the shares on which the exposure was based. In options, the investor does not purchase the stock itself but pays a premium for the right to sell it at a certain price in the future. Therefore, the capital invested is lower than the nominal exposure, but can still reach tens or even hundreds of millions of dollars depending on the strike prices, expiration date, and volatility level at the time of purchase.

Burry's argument was that Palantir had become a symbol of the excessive enthusiasm surrounding AI. He warned that investors were pricing in an almost perfect scenario and that the company's valuation did not reflect future risks.

Will Alex Karp dance?

Burry compared Palantir's valuation to a "sandcastle" — an impressive structure built quickly against the backdrop of technological enthusiasm, but one that could crumble if reality does not meet the high expectations of investors.

Palantir CEO Alex Karp did not remain silent. Karp mocked investors trying to bet against AI infrastructure, and even described betting against the field as "absolutely crazy" in an interview with CNBC in November 2025. According to him, anyone who doubts the strength of demand from companies and governments simply does not understand the magnitude of the change taking place.

"The idea that someone would want to short chips is absolutely crazy," Karp said. "This behavior by the short sellers is outrageous, and I intend to dance when it turns out they were wrong."

For Karp, artificial intelligence is not a passing fad but a profound technological shift; for Burry, even a real revolution does not justify any price.

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How much did Burry lose?

Yesterday, the quarterly report arrived. Palantir again surprised Wall Street, showing strong growth, and the stock is surging sharply. The renewed rise in the stock was another blow to Burry's bearish thesis.

Assuming an exposure of about 5 million shares, Palantir's rise from about $126 before the report to about $142 after it — a jump of about $16 per share — reflects a theoretical decline of about $80 million relative to the value of the shares on which the bearish exposure was based.

But in the case of options, the calculation is not linear. In options, the maximum loss for the buyer of puts is limited to the premium paid. Burry did not hold a regular short on Palantir stock, but mainly long-term put options. Therefore, the value of the option is influenced by the probability that the option will expire in the money (ITM Probability) and by the implied volatility.

In Burry's case, the hit was double: the jump in Palantir stock moved the stock away from the strike prices of the puts and significantly reduced the chance that the options would expire in the money. At the same time, after the report was published, implied volatility decreased, which hurt the premium the market was willing to pay for those options. Estimates suggest the damage to Burry's position could amount to tens of millions of dollars.

Nvidia also in the crosshairs

The bet against Palantir was part of a broader thesis by Burry against large parts of the artificial intelligence ecosystem. At the same time, he also held a bearish position against Nvidia — the company that became the central symbol of the AI revolution. The argument was similar: the market is pricing in continued extraordinary growth, while Burry believed that eventually, the huge investments in AI infrastructure would moderate.

But in the meantime, the opposite happened. Tech giants like Microsoft, Meta, Amazon, and Google continued to pour billions of dollars into data centers and AI infrastructure. Nvidia continued to show strong demand, and Palantir continued to show business growth.

Will you see more?

It is too early to say that Burry was wrong — but it can be said with confidence that the market did not play by his script. Burry's history teaches that contrarian investors can be right even when the market disagrees with them for a long time. This was the case during the housing crisis: he identified the problem early but had to wait until reality caught up with the forecast.

The challenge this time is that artificial intelligence is not just a story of expectations. The leading companies in the field continue to show results that strengthen the narrative of bullish investors. It is possible that in the future, multiples will decrease and forecasts will moderate. It is possible that Burry will again prove that he identified a bubble before everyone else. As the character in "The Big Short" says: "You'll see, it will pay off… maybe I was early, but I'm not wrong."