Nomura Warns of 15% AI Slump as Burry Bets Against Nvidia

A stark warning from Nomura analysts suggests the artificial intelligence bull market could face a severe correction, potentially triggering a Nasdaq circuit breaker and sending semiconductor-focused exchange-traded funds down by 15% in a single session. The analysis introduces the risk of a "DeepSeek-style" shock, a sudden event that could sharply reverse the sector's massive gains and increase investor caution.

"The warning could increase investor caution and hedging in the AI and semiconductor sectors," Nomura stated in a recent report. A realization of such a shock could lead to a sharp correction in tech stocks, particularly affecting over-leveraged positions in the Nasdaq and related semiconductor indices, potentially triggering broader market volatility.

The caution comes as investors grapple with stretched valuations after a multi-year rally. Shares of AI chip leader Nvidia (NASDAQ:NVDA), for instance, have surged approximately 150% in the past two years and an astonishing 1,500% over the last five. This meteoric rise has created a dilemma for those sitting on huge profits: take the money and run, or let the winners ride higher.

This environment of high valuations and market uncertainty is exemplified by the actions of contrarian investor Michael Burry. The head of Scion Asset Management, famous for his "Big Short" against the housing market, has taken a bearish stance on the semiconductor industry, betting against the sector through put options.

Burry's Bearish Stance

Michael Burry has not shied away from expressing his skepticism about the current AI-driven market frenzy. His firm's regulatory filings show a significant bearish bet against the semiconductor sector, directly challenging the prevailing bullish narrative. While the specific composition of his options portfolio can change, the move signals a belief that the sector, and high-flyers like Nvidia in particular, are overvalued and ripe for a pullback.

While Burry’s timing on market calls has not always been perfect, his willingness to bet against consensus forces investors to consider the bear case. For those heavily invested in semiconductor stocks, his position is a reminder of the cyclical nature of the industry and the valuation risks that accompany parabolic runs.

Not All AI Is Equal

Interestingly, Burry’s bearishness on semiconductors does not appear to be a wholesale rejection of artificial intelligence as an investment theme. His portfolio has also shown a significant position in Microsoft (NASDAQ:MSFT), a company making substantial investments in AI through its partnership with OpenAI and its own Copilot services.

This suggests a more nuanced strategy: differentiating between the companies manufacturing the high-priced "picks and shovels" of the AI gold rush and the established tech giants integrating AI into a diverse range of products and services at a potentially more reasonable valuation. Burry's bet on Microsoft may indicate a preference for what he sees as a lower-cost, value play on the AI trend, offering a better risk-reward profile than the expensive momentum trades in the semiconductor space.

For investors, the divergence between Burry's Nvidia and Microsoft positions highlights a critical question. The choice is not simply whether to be "in" or "out" of AI. Instead, it is about how to allocate capital within the theme — whether to chase the high-growth, high-valuation chip stocks or rotate into broader software and cloud players that offer a different, potentially more defensive, way to participate in the AI revolution.

This article is for informational purposes only and does not constitute investment advice.