Michael Burry says Nvidia stock could rebound from its latest scandal even as he keeps betting against the AI chipmaker. In a Substack post on Tuesday, the investor of "The Big Short" fame wrote that he was "a bit shocked at how the market has turned on the company."

The sell-off followed a Sunday email in which Nvidia CEO Jensen Huang admitted to having an affair after reports surfaced of his close relationship with a suspected Chinese spy. Since that revelation, Nvidia stock has fallen nearly 10% to about $169 a share as of Tuesday's close.

The damage runs deeper than one week. The stock has plunged more than 30% from its all-time high of around $243 on October 6, pressured by concerns over excessive AI spending and fears of stricter regulation after Democrats won control of the House and Senate last week. Nvidia's market capitalization has shed over $1.7 trillion in just over a month — more than Meta's entire market value.

What does Burry actually expect?

Burry doubts the "scandal will hurt the economics of the business tremendously." If he were not already bearish on Nvidia, he said, he might feel a "little pumped" as a contrarian investor eyeing the drop.

Still, he warned that Nvidia's competitive advantage could now erode faster over the next five years than he had expected. He pointed to the "danger" that the controversy could push the US government to crack down on the trade of Nvidia chips in China and open investigations into the company's business practices.

He described Nvidia's investments in, and demands of, other AI players as "mafia-like behavior," adding that enforcement agencies would find plenty to question if they "stop ignoring and start investigating." Nvidia did not immediately respond to a request for comment.

Burry wrote that he is not "tempted" to buy and hold the stock at this point, though he could "imagine the whole market is going to think this is a heck of a trade fairly soon." He predicted Nvidia's dominant market position would "battle mightily" against "valuation multiples, still hopped up on sky-high margins, getting too low."

The market moved quickly to test that view: Nvidia stock rallied about 4% in premarket trading on Wednesday.

How has Burry positioned the trade?

Burry has been publicly betting against Nvidia for months. In an October 11 post, he said he had shorted the VanEck Semiconductor ETF, noting Nvidia made up nearly 20% of the fund.

In a September 28 post, he said he had replaced his outright short on Nvidia with bearish put options struck in the mid-$100s and expiring next September, seeking more leverage.

He explained in January that he shorted Nvidia because it was "simply the purest play" for anyone negative on the AI boom, since the company is "entirely dependent on hyperscaler spending." With the stock now near $169, his mid-$100s puts sit below the current price.

Burry has repeatedly warned the AI rush will end badly. His red flags include:

• Aggressive accounting across the sector
• Circular financing arrangements
• Hidden debts
• Overinvestment in microchips and data centers that quickly become obsolete
• Excessive stock-based compensation

Why his view carries weight

Burry is best known for his contrarian bet against the mid-2000s housing bubble, later chronicled in the book and film "The Big Short." He shut down his hedge fund roughly a year ago and now writes about his personal investments on Substack.

For portfolio managers, the takeaway is twofold. Burry's put strikes and the premarket bounce frame the near-term battleground: a possible rebound trade against a deteriorating regulatory backdrop. The $1.7 trillion decline in market value, larger than Meta's entire capitalization, shows how quickly a governance scandal can compound broader valuation concerns.