Michael Burry Bet Against Semiconductor Sector

Michael Burry bet against the semiconductor sector riding the AI investor mania, which as of lately has been glowing white hot, could be spurring investors to reassess their position in the sector.

The maverick contrarian investor’s call to fame and fortune was being the first investor to predict and profit from the 2007 and 2010 subprime mortgage crisis. Michael Burry’s contrarian bets made him a legend in the investing world, and he’s one of the few fund managers known in popular culture (along with Warren Buffett and Carl Icahn) thanks to his role in Michael Lewis’ book “The Big Short,” and subsequent movie of the same name.

Michael Burry’s investing career has had its ebbs and flows.

The permabear recently suffered huge losses shorting the market.

Early this year Michael Burry tweeted one word, “Sell” and in the final quarter of the year he tweeted, “I was wrong to say sell.”

These 3F form quarterly filings provide a snapshot of the fund’s portfolio holdings and for those of us outside the club they can provide some useful information.  

Fund managers tend to be secretive about the positions they are building because if everyone knows their next move they will lose their pricing edge.    

Notice that the iShares Semiconductor ETF is up 35.69% year to date and we estimate that if Michael Burry is still holding onto those puts he is near breakeven.  

What is the anomaly with Michael Burry’s bet against the semiconductor sector? 

Michael Burry likes to tweet about his moves, but in this 100,000-contract put trade against semiconductor ETF SOXX he kept silent. 

Michael Burry didn’t tweet about his bearish semiconductor play, nor did he announce it to the press. 

The only way we discovered Michael Burry’s bet against the semiconductor sector is by analysing Burry’s Scion Asset Management’s latest 13F filing.  

Each quarter, every institutional investment manager with over $100 million in assets is required to submit paperwork to the SEC listing all the equity holdings in their funds. 

So is Michael Burry playing his hand close to his chest, or is he bluffing?

A third possibility is that Michael Burry could be holding personally a bunch of semiconductor stocks so maybe he is hedging his long position with these puts. 

A put is an options contract giving Michael Burry the right, but not the obligation, to sell a certain amount of semiconductor ETF SOXX, at a set price within a specific time. Michael Burry is betting that the semiconductor stocks will fall below the exercise date. 

Late June and early July Scion Asset Management’s 13F showed 33 positions, including short options against the broad-based S&P 500 SPDR ETF (SPY) and the Invesco QQQ Trust (QQQ). 

But the most recent 13F filing from Nov. 14 shows only 13 positions, no short position on the SPY or QQQ ETFs, and a major new short position in the iShares Semiconductor ETF (SOXX) – a BlackRock ETF holds many major chipmakers, including Advanced Micro Devices, Inc. (AMD), Broadcom (AVGO), Nvidia (NVDA), and Intel (INTC).

Michael Burry’s Scion Asset Management’s latest 13F filing is somewhat perplexing.

The big short is bearish on the main driver of the bull market, semiconductors but he is not positioning himself for the same pessimism on S&P 500 SPDR ETF (SPY), according to the latest 13F filing.   

Is it time to short chips, bearing in mind Michael Burry’s bet against the semiconductor sector? 

Betting against semiconductors is a bet against an advanced economy. 

Everything contains chips, from toasters to washing machines, autos, home alarm systems, computers, smartphones  

Chipmakers have been one of the stars of the stock market lately, and companies like Nvidia have seen their stock prices explode, driven by the AI boom and relentless demand for more powerful chips. SOXX, the ETF 

Burry’s bet against the white-hot semiconductor industry raises questions, Is the semiconductor market overvalued?

Those semiconductor stocks riding the AI mania could be overvalued. 

If the recovery in demand for personal computers continues into 2024 and more people switch from IC engines to EVs then semiconductor demand could remain buoyant.  

Maybe Burry is just hedging his long position

But Michael Burry is not the only investor taking his chips off the table, as other investors believe that semiconductor companies, specifically Nvidia, peaked. 

Soros Fund Management recently sold its Nvidia shares in favour of Taiwan Semiconductor Manufacturing Company (TSM), and the hedge fund Man Group also sold its massive stake in Nvidia.

So maybe it is just profit-taking in the star-flying semiconductor stocks like Nvidia. 

Michael Burry bet against the semiconductor sector may not be an actionable target for retailers. As noted, this is an option trade with many missing pieces.  

Let’s start with this footnote from the 13F:

..the Form 13F report excludes any short positions on the Investment Manager’s books and records, which may serve to hedge the long [put option] positions.”

So, as we noted previously, these puts could be used as a hedge against an equity position.

Moreover, if Michael Burry’s puts were sold for a profit, exercised, or left to expire worthless. 

So, without knowing the strike price, expiration series, or Burry’s ultimate exit plan, this apparent SOXX short we do not have enough information to make it an actionable trade. 

Fifty cents worth; semiconductor stocks would be the worst stocks, to short late in the central bank tightening cycle.