Michael Burry expanded his Nvidia short position while simultaneously purchasing December call options as a hedge ahead of the company's record-breaking earnings report. According to his Substack disclosure, Burry set call strikes in the mid-to-high $200s and paid a single-digit premium per contract, describing the calls as a hedge rather than a bet on gains. The 'Big Short' investor noted that the cost is fully offset by his existing short and put exposure, which represents 3.5% to 4% of his portfolio. Burry emphasized he is 'not playing for gains here' and would not have made the trade without such a large bearish position already in place. This hedging approach mirrors his strategy around past earnings reports, though he admitted his track record with it is mixed.
The S&P 500 rally has stalled as markets contemplate multiple risks that could dampen market mood and fuel corrections. However, the index remains well positioned to extend gains to new all-time highs, largely thanks to continued optimism around the AI boom and a strong earnings season. The hyperscalers funding the physical AI build-out - Meta Platforms, Microsoft, Amazon.com and Google - delivered mostly strong results and reiterated their commitment to AI investments, targeting a combined 2026 capex of $720-$745 billion. According to FactSet, the revenue growth rate for the S&P 500 of 15% so far in Q2 would mark the fastest pace in over four years if it materialises. Key players in the global chip supply chain like Intel, Micron and TSMC see continued demand as proliferation moves to a more aggressive phase thanks to the rise of inference and agentic AI.
According to Schwab's chief investment strategist Liz Ann Sonders, Nvidia and Micron will drive a third of S&P 500 2026 earnings growth. As reported by CNBC, Nvidia alone accounts for 18% of the S&P 500's expected year-over-year earnings growth, while Micron's AI memory chips add another 14 percentage points. Sonders characterized this concentration as the market's defining dynamic, noting that 'rotation in and of itself is the new momentum trade.'
Nvidia's seven-day losing streak has pushed the stock down 7.5% from August 14-24, with market capitalization shrinking by approximately $407 billion to near $5 trillion. The company's stock fell 2.91% on August 24, with year-to-date gains compressed to around 11%. Wall Street currently expects Nvidia's fiscal second-quarter revenue to be around $92 billion, with adjusted earnings per share of approximately $2.09. However, even beating guidance may not satisfy investors who have raised expectations, with Jefferies projecting quarterly revenue could reach $95 billion and next quarter guidance of $108 billion. Customer concentration turns the report into a stress test, as Nvidia's April quarterly filing showed three customers made up 21%, 17%, and 16% of total revenue, with those same three buyers accounting for 64% of accounts receivable combined. The company began splitting hyperscaler revenue from other data center sales last quarter, with hyperscaler sales growing just 12% sequentially while revenue from other customers jumped 31% in the same period.
Burry called Nvidia's low price-to-earnings ratio deceptive for a company he believes commands short-lived monopoly power, stating his own theoretical value for the stock sits well below where it trades today. He argued Nvidia will direct more cash toward capital spending than shareholder returns, investing 'into and through the top of the bubble' in a way that could later trigger sharp earnings reductions. This stance echoes Burry's broader campaign against the AI trade, including his 1987 style crash warning earlier this month. The investor also expanded long positions in Birkenstock and Freddie Mac this week, calling the Birkenstock stake a full position. Nvidia stock is up more than 12% year to date, considering its overnight pop, with whether yesterday's earnings validate Burry's short or hand him another loss on the hedge remaining an open question.
Nvidia recently struck a financing agreement with six Wall Street firms - Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR - to fund more than $500 billion in AI infrastructure. As reported by The Globe and Mail, Nvidia CEO Jensen Huang framed the strategy: 'In AI, compute is revenue. NVIDIA compute is uniquely suited for this role.' However, this vendor-backed financing model makes it harder for outsiders to separate organic AI demand from deals Nvidia itself helped fund. An earlier earnings preview noted that investors want proof of external demand, with financing that Nvidia extends to its own customers muddying that picture. The stakes reach beyond one company's stock price, as a broader sell-off in AI-linked shares last quarter dragged Bitcoin sharply lower, showing how closely crypto now tracks the AI trade. Earlier this month, Nvidia said it's partnering with Wall Street firms including Goldman Sachs Group Inc., BlackRock Inc. and Apollo Global Management Inc. to provide $500 billion in financing for AI infrastructure. Nvidia also agreed to spend as much as $105 billion to back a data center campus in Ohio that will be leased by OpenAI.
The Vera Rubin architecture represents Nvidia's next major growth driver, with Jefferies expecting Vera Rubin-related products to contribute about 12% of Nvidia's GPU revenue in Q3 fiscal 2027, rising to over 40% in Q4 and becoming the primary revenue source by Q1 fiscal 2028. The new-generation rack design reduces assembly time for compute trays from roughly two hours to five minutes. Nvidia is working to transform AI server construction into a more standardized and replicable 'AI factory' delivery model, with higher deployment efficiency expanding revenue potential for Nvidia's full-stack systems. Beyond GPUs, the Vera CPU could reach about $20 billion in revenue this year, with a total addressable market of around $200 billion. The significance of this improvement extends beyond reducing installation time, as it enables faster cloud computing company and large enterprise scale of compute capacity, expanding the revenue potential for Nvidia's full-stack systems.
