Business
Michael Burry has a $1.1 billion short bet against AI stocks and markets are plunging worldwide
Nasdaq 100 futures were pointing downward again this morning after the index lost 2% yesterday in a massive, global selloff of tech stocks that shows no sign of letting up. The selling continued this morning in Asia and Europe. The STOXX Europe 600 was down 0.46% in early trading. Japan’s Nikkei 225 was down 2.5%. And South Korea’s KOSPI was down 2.85%. Bitcoin dipped below $100K but then rallied a little to $101K.
Yesterday, the Nasdaq Composite was down 2.04%, Palantir lost nearly 8%, Reddit lost 8.4%, Nvidia was down 4%, and Softbank lost 10% at one point.
The markets are highly vulnerable to a selloff in tech stocks. In October, tech stocks tracked by Bank of America contributed more than 90% of the S&P 500’s total return for the month, according to analysts Savita Subramanian et al. The Magnificent 7 stocks alone contributed 80%.
Those are precisely the stocks that were pummelled yesterday and are expected to take another beating this morning, if the futures markets are right.
Asian markets are also driven largely by a narrow tranche of companies.
“In Hong Kong, it’s six tech stocks that are responsible for 50% of the Hang Seng’s return this year. In Korea, it’s two stocks that are responsible for 40% of the index’s return. In Taiwan, one stock is responsible for more than half of the return, so it is a very narrow rally that is comparable to how much the Magnificent 7 is driving the S&P in the U.S.,” according to Arjun Neil Alim of the Financial Times.
Multiple Wall Street analysts are now asking whether equities are heading for the 10-20% correction predicted by the CEOs of Goldman Sachs and Morgan Stanley yesterday.
The drama was heightened when Scion Asset Management, Michael Burry’s hedge fund, disclosed to the SEC that it had a short bet worth $1.1 billion against Nvidia and Palantir. Burry, of course, was the investor who placed “The Big Short” against subprime mortgages prior to the Great Financial Crisis of 2007. The context is that although Palantir is growing like wildfire, its market cap is $450 billion but its annual revenues are expected to be only $4.4 billion.
Palantir CEO Alex Karp was, unsurprisingly, enraged by the move. His company just delivered a Q3 revenue gain of $1.2 billion, up 63%, beating expectations. After yesterday’s losses in the markets, Palantir was down another 3% in overnight trading.
“The two companies he’s shorting are the ones making all the money, which is super weird,” he said on CNBC. “The idea that chips and ontology is what you want to short is batshit crazy.”
“I do think this behavior is egregious and I’m going to be dancing around when it’s proven wrong,” he said.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were down 0.15% this morning. The last session closed down 1.17%.
- STOXX Europe 600 was down 0.46% in early trading.
- The U.K.’s FTSE 100 was flat in early trading.
- Japan’s Nikkei 225 was down 2.5%.
- China’s CSI 300 was up 0.19%.
- The South Korea KOSPI was down 2.85%.
- India’s NIFTY 50 was closed today.
- Bitcoin was down at $101K.
