Heads Burry Wins. Tails?

Michael Burry is short Nvidia.

But days before earnings, he did something that seems to point in the exact opposite direction.

He bought Nvidia calls.

Then he made things even more confusing by describing the stock as “wildly undervalued.”

Which got us wondering:

How can you think Nvidia is undervalued, bet on it going up — and still be short the stock?

The obvious answer would be that Burry changed his mind.

He didn’t.

In fact, the calls only make sense because of the much bigger bet sitting on the other side.

And Burry himself described what came next as essentially “a coin flip.”

So, we unpacked the trade.⇩

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A Little Long, A Lot Short…

“I Am Not Playing For Gains Here”

Burry’s own explanation for buying Nvidia calls while remaining short. ↓

→ 3.5–4% – Portfolio allocated to Nvidia calls.

→ 21%+ – Total short exposure, excluding puts
The bigger picture remains decidedly bearish: more than one-fifth of the portfolio was positioned short across individual stocks.

→ +8% – Nvidia’s move the day after earnings
The exact scenario the calls were there to protect against. Nvidia surged 8.7% on Aug. 27 after its earnings and outlook reinforced confidence in AI spending.

The Trade, Minus the Jargon↓

On paper, Burry’s positioning looks strange:

→ He’s short Nvidia — betting the stock eventually falls.

→ He owns puts — giving him even more downside exposure.

→ Then, before earnings, he bought calls — which benefit if Nvidia rises.

Why bet both ways?

Because Burry wasn’t buying the calls to turn bullish. He was buying protection against being wrong in the short term.

If Nvidia ripped higher after earnings, the calls could soften some of the damage to his much larger bearish position.

And that’s essentially what happened: Nvidia jumped 8%.

Burry said he “would not have made the trade at all” without the short already sitting on the other side.

In other words: The calls weren’t a change of heart. They were insurance.

✱ Hedge your expectations. Burry admits this playbook isn’t foolproof. His previous attempts to hedge around Nvidia earnings with short-dated options have delivered “inconsistent results.”

! It’s protection, not a guarantee.

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The Short List Gets Longer.

See the pattern?

Burry added to shorts in Oracle, Palantir and Nebius — while putting more money behind very different bets in Birkenstock and Freddie Mac.

It makes Nvidia harder to dismiss as a one-stock bearish call.

It fits into the broader “perimeter of debt” thesis we covered earlier this month: Burry’s concern that the risks surrounding the AI spending boom extend well beyond Nvidia itself.

✱ He is short more of the AI trade. Long elsewhere.

Undervalued…

Burry called the stock “wildly undervalued” based on its earnings power and the “monopoly rents” he believes Nvidia can command.

So… why short it?

He argues Nvidia “will not distribute enough to shareholders” — instead continuing to pour capital back into the AI buildout, potentially “into and through the top of the bubble.”

And in Burry’s valuation, even Nvidia’s enormous earnings power still doesn’t justify where the stock trades today.

The distinction: Nvidia can be cheap relative to the profits it generates — and still expensive relative to what Burry thinks shareholders will ultimately get back.

And Then There’s Cisco.

Burry has been building this argument since at least May, when he drew a comparison between Nvidia’s AI financing arrangements and Cisco during the dot-com boom.

His concern is that reported revenue doesn’t necessarily tell you where the financial risk ultimately sits.

Fully disclosed revenue can still be tied to a system where enormous amounts of capital and debt are circulating between companies buying, financing and building AI infrastructure.

It’s the same “perimeter of debt” argument we covered earlier this month — only this time, Nvidia sits much closer to the center of it.

Lesson Of The Day:

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