Financial guru Michael Burry, known as the inspiration for one of the characters in “The Big Short,” increased his bet on a decline in the tech market after Jensen Huang stepped down as Nvidia CEO and reports emerged of US Justice Department investigations into the company. Burry believes that problems at the leading chipmaker could trigger a broad correction in the sector, he wrote in a new post on Substack.
The investor acknowledged, however, that competitors and the largest chip buyers could benefit: “As Nvidia falls, Broadcom and AMD stand out as competitors and beneficiaries. Both stocks are up today. In the short term, that makes perfect sense.” Huang’s departure could also benefit the chipmaker’s customers: if the company weakens, hyperscalers will find it easier to negotiate favorable terms for chip purchases—they will have more leverage in negotiations, Burry believes.
To bet on a decline across the broader sector, he chose the VanEck Semiconductor ETF. It holds shares in 25 semiconductor manufacturers, with Nvidia accounting for 18% of the fund’s assets, TSMC for 10%, Broadcom for 6.13%, and AMD for 6.04%. At the close of trading on November 12, the ETF was down about 1%: it had fallen more than 4% in the morning, but recovered most of its losses by the close.
Burry said he had restored the position in put options on the VanEck Semiconductor ETF that he had previously cut by 25%—contracts that allow investors to profit when an asset’s value falls. The options he bought expire in June. The investor noted, however, that in the short term, the VanEck Semiconductor ETF may not be the best way to bet on a decline in the semiconductor sector, since the fund’s largest holdings compete with one another. Burry nevertheless continues to expect a substantial drop in the value of stocks in the industry, partly because companies’ profits could fall over the next two years.
As an alternative, Burry is considering the iShares Semiconductor ETF, but believes it is a less suitable instrument: AMD and Broadcom account for the largest holdings in the fund, and its price was virtually unchanged on November 12.
Burry also took advantage of the Nasdaq 100’s rebound from the 27,000-point mark to double his position in put options on the index, betting that it would fall. But the financier acknowledges that, for now, shares of the largest technology companies are supporting the Nasdaq 100, partly offsetting Nvidia’s decline.
On the morning of November 12, Burry advised investors to sell Nvidia shares, saying that Jensen Huang’s departure could undermine the financing and sales system that had enabled the company’s rapid growth and profitability. He believes the company’s upcoming quarterly results will be strong, and sees this as a good opportunity to exit the chipmaker’s stock before the effects of Huang’s departure show up in its financial results. ㅤ