An investor from "Betting on a Downturn" hedged against a rise in Nvidia's stock price

Investor Michael Burry, known for being the inspiration behind the protagonist in the movie *The Big Short*, bought call options on Nvidia shares ahead of the release of its quarterly earnings report to hedge a large bet on a decline in the stock price. Burry maintains a “bearish” outlook on the leading chipmaker: in his assessment, the company faces growing competition and may see its profitability decline.

Michael Burry purchased December Nvidia call options with strike prices of approximately $250–290, he reported on his Substack blog on August 26. The financier described the purchase as a hedge against a rise in the chipmaker’s stock price and emphasized that he does not expect to profit from it as a standalone trade.

“I’m not trying to make money on these options, and I wouldn’t do so if I didn’t have such a large short position and a position in put options. This position accounts for 3.5–4% of my portfolios,” Burry wrote. The investor noted that he had occasionally purchased similar “insurance” in the past ahead of earnings reports from companies he was shorting, but acknowledged that the results of such trades had been mixed.

Burry noted that Nvidia’s stock has recently fallen more often than it has risen following quarterly earnings reports, illustrating this with a chart. According to the chart, in the last four instances, the company’s stock declined during the trading session following the release of its quarterly results. At the same time, the investor acknowledges that it is currently nearly impossible to predict the market’s reaction to Nvidia’s new earnings report, which will be released after the market closes on August 26; he compared it to flipping a coin.

Burry emphasized that Nvidia’s current market valuation does not reflect its long-term risks. At first glance, the stock appears cheap given the company’s growth rate and dominant market position; however, according to the investor’s calculations, its intrinsic value is significantly lower than the current market price. He expects that Nvidia’s period of monopoly power will be short-lived and that the business’s profitability will begin to decline over time.

Burry sees another risk in Nvidia’s capital expenditures and the investments the company is making to diversify its business and sustain revenue growth. He suggested that such investments, coming at a late stage of the AI boom, could lead to a “shocking” decline in profits in the not-too-distant future.

Burry added to his holdings in Birkenstock and Freddie Mac. He noted that he has now fully established his position in Birkenstock and described his investments in Freddie Mac and Fannie Mae as substantial. The investor also increased his short positions in Oracle, Palantir, Nebius, Nvidia, and Caterpillar. The combined weight of his direct short positions in these stocks exceeds 21% of his portfolios, excluding put options.

This article was AI-translated and verified by a human editor