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Michael Burry has moved most of his bets against AI out of individual stocks. In a post on Sunday, he wrote that almost his entire short position is now puts on just two things, the Nasdaq 100 and SMH, the biggest chip ETF. His SMH puts expire next June, about 20% below the price. And he wrote, "I believe we are within 0 to 9 months of a significant top." SMH is up about 64% this year.
A thousand dollars put in when it launched in 2011 would be worth about 46,000 today. But today it fell for a fifth straight day, the longest losing streak for chip stocks since July. The industry expects chip sales to nearly double this year to 1.5 trillion dollars. So is this the backbone of the AI boom or the top Burry is waiting for?
Let's break down SMH, what's inside, . SMH is an exchange-traded fund, one ticker that holds 26 of the biggest U.S. listed chip companies. It manages about 73 billion dollars and charges 0.35% a year. But it's not evenly spread. Nvidia alone is almost 20% of the fund. TSMC is about 9%. The top 10 holdings make up about 2/3.
So when you buy SMH, you're mostly buying the AI trade. And it covers the whole chip supply chain, designers like Nvidia, AMD, and Broadcom, TSMC, the factory that makes most of their chips, memory makers like Micron, and the tool makers like ASML, Applied Materials, and KLA that sell the machines every chip factory needs.
The ticker SMH goes back to April 2000 when Merrill Lynch launched it as the Semiconductor Holders Trust. It's timing was terrible. The dot-com bubble was bursting and from 2000 to 2002, the main chip index fell more than 80%. In December 2011, Van Eck took it over and turned it into the ETF we know today, keeping the same ticker.
Chips are a boom and bust business. From 2004 until this year, the chip index had seven drops of 20% or more, 69% in the financial crisis, 46% in 2022, 40% from 2024 into the tariff crash of 2025. Every one of them eventually recovered, but some took years. Here's what a thousand dollars in SMH became with dividends reinvested.
By the end of 2019, about 5,000. Then the pandemic chip shortage. By the end of 2021, almost 12,000. 2022 cut it by a third as rates rose and demand for PCs and phones collapsed. Then chat GPT arrived. 2023, up 73%, then 39%, then 49. This year went vertical. In April alone, SMH jumped 32%. May added 18 more.
By late June, chip stocks hit a record. Then July. Worries about AI spending, rising rates, and Chinese competition. In about a month, chip stocks fell more than 20%, a bear market. SMH lost almost 18% that month. It bounced back fast to 634 on October 5th, then five straight down days. Today's close, 591.
Now the numbers behind the boom. The industry's own forecasters, WSTS, expect global chip sales to grow 90% this year to $1.51 trillion. Memory alone is expected to jump about 250% to more than 800 billion. And next year, the total is forecast to reach about $1.9 trillion. Who's paying? Mostly Amazon, Microsoft, Alphabet, and Meta.
Together they're on track to spend 700 to $725 billion on capital spending this year, up about 75%. And last week, TSMC reported record third quarter sales above the top of its own forecast. So what is Burry betting on exactly? This summer he shorted another chip fund, the iShares Semiconductor ETF, and added to it in July.
In late September, he swapped that short for puts expiring in September 2027. Now he has consolidated puts on SMH expiring in June 2027 and puts on the Nasdaq 100 expiring in April. He says SMH gives him concentrated exposure to the hottest, most overextended chip stocks, and he expects the puts to gain a lot of value even before the funds fall 20%.
So the bull case, five points. One, demand is exploding. Chip sales are forecast to grow 90% this year and another 27% next year to about $1.9 trillion. Two, the customers keep raising their budgets. Big tech's capital spending is up about 75% this year, and Alphabet and Meta have both raised their plans.
Three, these are real profits. TSMC's September sales were up 55% from a year ago. Nvidia's revenue more than doubled last quarter. Micron earned $37.7 billion in a single quarter. And Nvidia, the biggest holding, trades at about 19 times next year's earnings. Four, a long winning record. Over 10 years, SMH has returned about 34% a year.
Every crash so far has been followed by new highs. Five, it already survived a bear market this year. Chip stocks fell more than 20% in July. And by early October, SMH had won back most of the drop. Burry's puts need a big drop, and they need it by next June. The bull view in one line. The world is building AI, and almost all of it runs on the chips inside this fund.
Now, the bear case and Burry's version of it. One, it's really an Nvidia bet. Nvidia is almost 20% of the fund, TSMC another nine, and the top 10 are about 2/3. If Nvidia stumbles, SMH stumbles. Two, chips are cyclical. Memory sales up 250% in one year is a boom. Micron's last bust in fiscal 2023 cut its revenue in half.
Booms like this one have always been followed by busts. The only question is when. Three, the spending loop. UBS estimates Amazon, Alphabet, and Microsoft will spend about 102% of their cloud revenue on capital spending this year. And Nvidia has invested billions in AI companies that buy its chips, including $30 into OpenAI.
Burry calls it customers funded by their dealers. Four, Michael Burry. The man who called the housing bust now says a significant top is zero to 9 months away, and he has already been right on part of this trade. He shorted Caterpillar's AI power story on the exact day it hit a record. It fell 23% in July.
Five, it can fall fast. In July, chip stocks entered a bear market in about a month. SMH has a beta of 1.7. It tends to move about 1.7 times as much as the market. It trades at about 37 times trailing earnings, and today was its fifth straight loss. The bear view in one line, SMH is a crowded leveraged bet on one spending boom, and booms end.
So, what decides who's right? This week, inflation data on Wednesday and TSMC's earnings call on Thursday. Watch what it says about AI demand next year. Then the cloud giants report, expected in late October. The key number is their capital spending plan for next year, and Nvidia's next report, expected in late November.
On the chart, the June record near 672 is the ceiling. The September low near 542 is the floor. Burry's puts sit roughly 20% below the price, in the high 400s. For options traders, SMH moves. April up 32% July down 18. Bigger moves mean bigger option premiums. At about 590 a share, one contract controls about $59,000 of SMH.
Too big for covered calls in an account our size. For us, that means spreads, defined risk, smaller size. Burry's version, long-dated puts well below AI trade cracks, the payout is big. So, who's right? An industry forecasting 1.9 trillion in sales or Burry calling a top within 9 months? .
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