When Michael Burry - made famous by The Big Short - revealed he was betting against Palantir and Nvidia, it barely rattled the markets. Just days later, his hedge fund, Scion Asset Management, was being wound down. For a generation of investors who once revered him as the man who foresaw the 2008 crisis, it was a sobering moment.

Burry’s $9.2 million in puts on Palantir, a company championed by retail investors and its outspoken CEO Alex Karp, was more symbolic than seismic. But the real story isn’t just about one contrarian investor walking away. It’s about whether short selling itself - once a vital check on speculative excess - is becoming obsolete in an AI-fuelled, momentum-driven world.

AI’s market dominance is reshaping the rules

We’re living in an era where AI isn't just transforming business models, its transforming markets. Companies like Palantir, Nvidia, and others have surged on AI narratives, not necessarily profits. In some cases, earnings have been inflated by technical accounting adjustments, such as extending depreciation schedules for AI infrastructure. But when Burry raised red flags, the market shrugged.

Retail and institutional investors alike are now moving in algorithm-driven herds. Momentum reigns. Vision trumps valuation. Short sellers, by contrast, are often cast as cynical obstructionists - "triggering", as Palantir’s CEO put it - when they question the hype.

It’s no surprise that many notable short-focused firms - Jim Chanos’s Kynikos, Nate Anderson’s Hindenburg - have either closed or pivoted. Betting against the crowd in a bull market driven by liquidity, innovation narratives, and social media amplification has become professionally, reputationally, and economically risky.

A pause or a permanent shift?

Does this mean the short seller is finished? Not necessarily.

History is full of speculative frenzies that looked rational until they didn’t. From dot-coms to subprime, every cycle has its moment of reckoning. What’s different today is not the absence of excess; it’s the market’s growing tolerance for it. In an age of easy capital and AI-powered optimism, the feedback loops are faster, the exits narrower.

The question is whether this represents a permanent structural change or just the top of another bubble waiting to pop. Valuations remain stretched, market breadth is narrow and systemic fragility often shows up long after the first warning signs appear.

Burry’s decision to exit the stage may not reflect the death of short selling; it may simply mark the end of an era where being early was enough. In today’s markets, being right too early can look an awful lot like being wrong.

Why this matters to investors

If you’re a portfolio manager, allocator, or institutional investor, this moment should prompt reflection, not dismissal. Do you have enough contrarian thinking in your investment process? Are you exposed to structural risks hiding under momentum trades? Have you assessed where AI’s promise ends and overconfidence begins?

Short sellers, despite their reputational baggage, often spot the cracks first. Their absence from the current conversation may say less about their relevance and more about the market’s current appetite for hard truths.

Final thought: The role may change, but the need remains

The short seller may be out of fashion, but they’re not extinct. Their strategies may evolve - more private market scrutiny, forensic accounting, and event-driven plays - but the need for independent scepticism is greater than ever.

Michael Burry might be walking away. But if history is any guide, the market will eventually reward those willing to challenge the narrative. And when the next reversal comes, short sellers may not be warning from the side-lines, they’ll be leading the charge.