US stock markets rebounded on Wednesday as investor nerves cooled after billion-dollar short positions disclosed in leading AI companies sent tech stocks in a tailspin on Tuesday.
Star fund manager Michael Burry, of The Big Short fame, disclosed a $1.1bn (£843m) wager on Palantir and Nvidia shares falling on Tuesday, after drawing attention to similarities between the AI surge and dot com bubble in 2000.
That sent shares in Nvidia down 4 per cent to $201, wiping approximately $200bn from its market value, while Palantir shares fell 8 per cent.
But the following day, Wall Street has rallied in signs investors were buying the dip, with the tech-heavy Nasdaq rising 0.57 per cent in early trading to 23,480.62, while the S&P 500 increased 0.39 per cent to 6,798.01.
Nvidia also rallied, with the share price rising 0.88 per cent to $200.43 after plummeting five per cent following Burry’s disclosure.
Palantir has struggled to bounce back with the share price dropping a further 2.66 per cent to $185.63.
Chris Beauchamp, chief market analyst at broker platform IG, said: “Traders who thought this unstoppable market was about to get its just desserts have been bitterly disappointed, as stock markets rebound from the selling that seemed to have such a firm grip just a few hours ago.
“Stocks don’t undergo crashes when everyone is expecting them.”
Burry’s bet
Burry, founder of Scion Asset Management, disclosed a $912m bet against Nasdaq listed Palantir and a $186m short of Nvidia, as well as investments on pharma firm Pfizer and oil services giant Haliburton.
Speaking on his investment disclosure, the trader posted on X: “”Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play.”
The announcement from the fund manager marked an end to his year long hiatus of issuing remarks on the stock market, and sparked a wide sell off of tech firms.
His bet stoked growing speculation that the AI bubble, that buoyed US stock markets to all time highs this year despite macroeconomic volatility, is coming close to popping, potentially causing the stock market to crash.
End of the AI bubble
Asset managers have also reduced their holdings in US markets in recent months, opting to diversify their portfolios with safer assets and markets, such as the UK and Europe, to mitigate potential losses.
Others have turned to South Korea to get their tech fix, with equities up 56 per cent this year to date, trading at 4,004.42 (£2.13).
Korean tech stocks trade at roughly half-discount to the US, offering investors a way to tap into the tech market with less risk, including Samsung and SK Hynix.