Michael Burry just sold GameStop stock: should you too?

GameStop NYSE:GME opened in the “red” this morning after Big Short investor Michael Burry confirmed he’s cut his entire stake in the gaming merchandise retailer.

The subsequent downward pressure has GME challenging its 100-day moving average (MA) today – with a decisive break below $23 expected to accelerate bearish momentum in the near-term.

Including today’s decline, GameStop stock is down over 10% versus its recent high.

Why Burry sold his stake in GameStop stock

Burry’s change of heart on GME shares is primarily related to the firm’s proposal to acquire eBay for nearly $56 billion, a colossal outlay compared to its own market cap of $10 billion currently.

The deal’s heavy leverage – reportedly involving $20 billion in new debt – is “incompatible” with a sound capital structure, the famed investor noted in his Cassandra Unchained Substack.

According to him, the buyout would push GameStop’s debt-to-EBITDA ratio to a staggering 7.7x, adding that the bid essentially invalidates his “Instant Berkshire” thesis.

“Instant Berkshire didn’t contemplate anywhere near 5x+ leverage,” Burry wrote. “Never confuse debt for creativity.”

In short, for the former hedge fund manager, GME’s shift from a lean, cash-rich “mini-Berkshire” to a debt-laden conglomerate was a clear signal to walk away before the ink even dries.

The problem with GameStop’s bid for eBay

Beyond Burry’s departure, GameStop shares continue to face significant fundamental headwinds.

The proposed $125-per-share offer for EBAY represents a massive 46% premium over its current levels – a price tag many analysts call “reckless” given GME’s own valuation.  

While CEO Ryan Cohen points to $418 million net income in 2025 as proof of a turnaround, critics argue that the eBay proposal is a desperate attempt to find growth as the core physical gaming business continues to secularly decline.

Meanwhile, at about 30x earnings, GameStop is priced for perfection in a scenario that now looks increasingly messy and expensive.

How to play GME shares as it tests the 100-day MA

All in all, with GameStop attempting to acquire eBay and Michael Burry unloading his entire stake in GME stock, the risk-reward profile has shifted dramatically.

While the “diamond hands” community remains vocal, the exit of a foundational bull like Burry – coupled with a high-stakes, debt-fueled pivot into the crowded e-commerce space – indicates a dangerous environment for retail portfolios.

The brief dip below the 100-day MA this morning serves as a warning that GameStop may continue to face pressure in the near-term.

If GME fails to convince the market that it can successfully integrate a company about five times its size without collapsing under the weight of its own debt, today’s sell-off may be the beginning of a longer winter for GameStop.

Note that the gaming merchandise retailer no longer receives coverage from Wall Street analysts, another major red flag for disciplined investors.