Key Takeaways
- Before Nvidia’s Q2 earnings release, Michael Burry increased his bearish position while simultaneously purchasing December call options for downside protection
- Despite acknowledging Nvidia appears “wildly undervalued on paper,” Burry maintains the company’s true intrinsic value sits far below current market pricing
- The investor also initiated bearish positions in Oracle, Palantir, Nebius, and Caterpillar
- Nvidia delivered adjusted earnings per share of $2.22, surpassing the consensus estimate of $2.09, while revenue climbed 106% to reach $96.2 billion
- Shares of Nvidia jumped 7.2% in premarket activity following the stronger-than-expected quarterly performance
Michael Burry, the legendary investor immortalized in The Big Short, executed a calculated dual strategy on Nvidia shares before the company’s second-quarter financial disclosure. He expanded his bearish stance while simultaneously acquiring December call optionsāa move he characterized as protective hedging rather than an expression of confidence.
In his Substack publication, Burry acknowledged that Nvidia presents as “wildly undervalued” based on conventional metrics, particularly its price-to-earnings ratio relative to its explosive growth trajectory. However, he clarified that his internal valuation model places the stock’s fair value “much lower than today’s market value.”
The Case for Pessimism
Burry questions whether Nvidia’s dominant position in artificial intelligence chips, impressive profit margins, and near-monopolistic market share will prove as sustainable as current valuations suggest. He identifies vulnerabilities in the pace of AI capital expenditures and points to what he describes as circular financing patterns within the technology sector.
The call options he acquired carry strike prices ranging from the mid-to-high $200s with December expiration dates, purchased at single-digit premiums. Burry emphasized these contracts were acquired strictly for risk management purposes rather than profit generation.
According to Burry, he would not have entered the call position absent his substantial short equity and put option exposure. His put options represent approximately 3.5% to 4% of his overall portfolio allocation, while his aggregate short stock exposure has expanded beyond 21%āa figure that excludes derivative positions.
The investor candidly admitted his historical performance using this earnings-hedging approach has produced inconsistent results.
Nvidia Delivers Impressive Quarterly Performance
On August 26 following market close, Nvidia unveiled robust second-quarter fiscal 2027 financial results. The company posted adjusted earnings per share of $2.22, exceeding analyst projections of $2.09 while representing a 120% year-over-year increase.
Total revenue soared 106% to $96.2 billion, comfortably beating the Street’s consensus forecast of $92.27 billion.
Nvidia shares advanced 7.2% during premarket trading in response to the earnings release. This upward movement likely pressured Burry’s short exposure, though his call options would have provided partial compensation for those losses.
In addition to his Nvidia positioning, Burry established fresh short positions across Oracle, Palantir, Nebius, and Caterpillar. These additions underscore his broader apprehension regarding elevated market valuations and questions surrounding the longevity of the current artificial intelligence investment wave.
According to TipRanks, Nvidia maintains a Strong Buy consensus rating supported by 29 unanimous Buy recommendations. The average analyst price target of $306.75 suggests potential upside of 46.3% from present levels. The stock has gained 12.6% year-to-date.
Burry’s two-directional approach creates a scenario where either market direction provides partial insulation, although his prevailing outlook remains decidedly negative.
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