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Is the AI Bubble Finally Bursting? Burry, SoftBank, and the "Bear Market" of 2025
If you’ve been riding the Nvidia wave since 2023, the last few weeks might have felt like a wake-up call. Two massive signals just flashed in the institutional world, suggesting the “easy money” phase of the AI trade may be over.
But does this mean a crash is imminent, or just a change in leadership?
Here is the breakdown of Michael Burry’s latest “Big Short,” SoftBank’s strategic exit, and most importantly how to position your portfolio for the next phase of the AI cycle.
The Bear Case: Michael Burry’s $1B Bet
Michael Burry, the man who famously predicted the 2008 housing collapse, has officially bet against the AI hardware sector. His fund, Scion Asset Management, has opened put options (bets that prices will fall) on Nvidia and Palantir with a notional value exceeding $1 billion.
The Core Thesis:
- Fake” Earnings? Burry argues that big tech companies are inflating their earnings by extending the “useful life” of their AI chips for accounting purposes. If chips become obsolete in 2 years but companies depreciate them over 6 years, profits look artificially high.
- Capex vs. Revenue: We are seeing a record “Capex-to-GDP” ratio. Companies are spending billions on AI chips, but the actual revenue from AI software hasn’t caught up yet. Burry believes this imbalance must correct.
- Trader Takeaway: Burry is essentially betting on a “reality check.” If earnings reports in Q4 2025 show slowing chip demand, his short position pays off.
The Smart Money Move: SoftBank’s "Rotation"
While Burry is shorting, SoftBank (a massive early investor in AI) is doing something more nuanced. They recently sold their entire ~$5.8 billion stake in Nvidia.
Did they leave the market? No. They rotated capital into the “Application Layer”—companies that use the chips to build software (like their private investments in OpenAI).
The Signal: SoftBank believes the “Hardware Supercycle” (selling the shovels) is peaking, and the “Software Supercycle” (finding the gold) is just beginning.
The Trade: How to Play the "Great Rotation"
If the market is shifting from Hardware to Software, your watchlist needs to change.
A. The “Short” Watchlist (Hardware & Semis)
Use these levels to manage risk on short positions or to take profit on existing longs.
The "Long" Watchlist (Undervalued Software)
Investors are looking for “catch-up” trades in software stocks that have lagged behind the hardware giants in 2025.
- Adobe (ADBE): Down ~27% in 2025 despite strong AI product integration.
- The Play: Look for a reversal if it holds above major monthly support.
- Salesforce (CRM): Trading at a discount relative to its historical averages.
- The Play: A classic “value” rotation target for funds leaving the semiconductor space.
- ServiceNow (NOW): A pure-play on enterprise AI automation that has historically lower volatility than chip stocks.
Technical Outlook: The "Death Cross" Risk
Traders should keep a close eye on the daily charts for the Semiconductor ETFs. We are approaching a potential “Death Cross” (where the 50-day moving average crosses below the 200-day moving average).
If this triggers, algorithmic trading bots will likely start selling heavily, accelerating the drop in chip stocks regardless of the fundamental news.
Summary: What Should You Do?
- Don’t Panic Sell, But Tighten Stops: If you are long Nvidia, consider moving your Stop Loss up to just below $177.
- Watch the Rotation: If Nvidia drops but Salesforce (CRM) or Adobe (ADBE) rises, the “Rotation Thesis” is confirmed. This is a signal to start buying the software dip.
- Hedging: Consider using Nasdaq 100 CFDs to hedge your tech-heavy portfolio. A small short position on the index can protect you if Burry is right about a broader market correction.
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Disclaimer: This article is for information purposes only and does not constitute investment advice. CFDs are high-risk instruments.
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