AI Stock Selloff: Is Michael Burry Right? SoftBank's $5.8B Nvidia Exit Sparks GLOBAL Fear!

Tech

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Updated on 12 Nov 2025, 02:01 pm

The recent selloff in artificial intelligence (AI) stocks on Wall Street has heightened investor anxiety, especially with Michael Burry, known for predicting market downturns, reportedly focusing on the sector. Adding to the concern, Deutsche Bank is investigating short positions and derivative strategies to hedge against potential defaults on loans made to major AI infrastructure providers like Alphabet, Microsoft, and Amazon, which are investing heavily in AI.

SoftBank Group revealed it sold its entire stake in Nvidia for $5.83 billion, causing the chip giant's stock to drop 10%. Some interpret this as a signal that the AI rally has peaked. However, this analysis suggests a more nuanced reality: investors are reallocating capital within AI, not exiting entirely. SoftBank's sale of Nvidia shares is part of a broader strategy to strengthen liquidity and fund new AI ventures, including significant investments in OpenAI and other AI startups. This is framed as "asset monetization" and portfolio churn, aiming to capture higher potential returns in newer AI segments.

Nvidia, despite its staggering valuation, is supported by strong revenue growth driven by demand for its advanced chips. While valuations are high, they are tethered to real profits, unlike the speculative metrics of the dot-com era. Research indicates that institutional investors often ride market exuberance rather than fight it early. The low short interest in Nvidia further suggests a lack of widespread conviction against the stock. The core AI ecosystem players are profitable giants, and while speculative froth exists, it is on the fringes, not the widespread mania seen in 2000.

Impact This news can significantly impact investor sentiment across the technology sector globally. It could lead to increased volatility in AI-related stocks, prompt further scrutiny of high valuations, and influence capital allocation decisions for both institutional and retail investors. The actions of major players like SoftBank and Deutsche Bank serve as key indicators of market sentiment and risk perception in the AI space. Rating: 7/10.

Difficult Terms Explained * **Hyperscalers**: Very large cloud computing providers that can scale their infrastructure rapidly to meet demand, such as Alphabet (Google Cloud), Microsoft Azure, and Amazon Web Services. * **Derivative-based structures**: Financial contracts whose value is derived from an underlying asset (like stocks or loans). They are often used for hedging to protect against potential losses. * **Asset monetisation**: The process of selling assets to generate cash or raise capital. * **Liquidity**: The ease with which an asset can be converted into cash without affecting its market price. * **PEG ratio (Price/Earnings to Growth ratio)**: A valuation metric that compares a company's P/E ratio to its expected earnings growth rate. A PEG ratio below 1 often suggests a stock is undervalued relative to its growth. * **Float**: The number of shares of a company that are available for trading on the open market. * **Short interest**: The total number of shares of a stock that have been sold short but have not yet been covered, or bought back. It indicates bearish sentiment. * **Foundation model**: A large-scale artificial intelligence model, typically a deep learning model, trained on a vast quantity of unlabeled data, which can then be adapted to a wide range of downstream tasks. * **Hedging**: Using financial instruments to reduce the risk of adverse price movements in an asset. * **Portfolio churn**: The process of buying and selling assets within an investment portfolio to adjust to market conditions or strategic goals.