Michael Burry gained fame for making an unpopular-at-the-time bet that turned out to be spot on. Ahead of the 2008 financial crisis, the hedge fund manager bet against the U.S. housing market -- as it turned out, he correctly predicted the subprime market crash and made more than $700 million for investors. Burry's story was brought to the big screen in the movie "The Big Short" several years later.
Meanwhile, Burry has continued to invest -- and make moves that generally don't go along with the crowd. This well-known investor last year started a Substack newsletter where he documents certain trades and shares his thoughts on the market. And Burry's latest moves include significant bets against artificial intelligence (AI) stocks -- the players that have driven stock market gains over the past three years.
In fact, Burry even signaled that this may be the "beginning of the end." Does Burry know something Wall Street doesn't? Let's find out.
Image source: Getty Images.
Investors flock to AI
First, a quick note about the AI story so far. As mentioned, stocks in this sector have led indexes higher through this bull market, with the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average climbing in the double-digits over the past three years. Investors have flocked to these companies, seeing them as leaders in the next big thing in technology -- and investors have scored a win in many cases as revenue and stock performance have taken off.
The idea is that AI may transform many areas, from manufacturing to office operations, to make companies more efficient -- and this will favor earnings growth at companies that develop or use the technology.
But Burry and others have expressed concern that the huge investments in AI today may not match the long-term revenue opportunity. This year alone, tech giants aim to spend nearly $700 billion in the AI build-out.
This bearish view has weighed somewhat on the performance of AI stocks in recent times, and investors clearly have become more cautious. Still, many AI players continue to soar. Micron Technology advanced 300% in the first half of the year, while Sandisk jumped more than 800%, for example. These companies offer the memory needed for AI workloads, and demand has been climbing.
Burry's latest moves
Now, let's consider Burry's latest moves. Burry in late June revealed bearish bets on several names involved in the AI story, such as Applied Materials, Tesla, Caterpillar, and the iShares Semiconductor (SOXX 3.12%) exchange-traded fund. The Wall Street Journal cited Burry's Substack newsletter.
NASDAQ: SOXX
Key Data Points
The ETF represents a particularly significant choice since it includes many AI companies, making it a broad bet against the industry. Its biggest holdings are Advanced Micro Devices, Micron, and AI chip leader Nvidia. The iShares Semiconductor ETF has climbed more than 130% over the past year.
Burry, when revealing his bearish bet, expressed concern about the plans of South Korea's Samsung (SSNLF +0.00%) and SK Hynix to invest $500 billion to create a chip hub, according to The Wall Street Journal. That news prompted gains in tech stocks, and Burry wrote in a Substack post that he views this as "the beginning of the end."
A few days later, Burry disclosed that he was shorting Micron stock, citing the company's cyclical nature and the "historically extreme" levels of the rally.
Burry's views about the AI boom aren't new; he opened bearish positions last year on Nvidia and Palantir Technologies, two of the biggest winners in the AI growth story.
Burry vs Wall Street
Now let's consider what all of this means for you as an investor. Does Burry, in going against the crowd, know something Wall Street doesn't? Wall Street knows that stocks won't move in one direction -- negative or positive -- forever. At a certain point, market direction shifts as part of a natural cycle, guided by valuations, earnings, and other elements.
It's very difficult to forecast exactly when such a shift may occur, as even Burry was early with his prediction ahead of the subprime market crash. But, when Burry sees signs that suggest such a transition might be ahead, he takes action -- and he clearly doesn't count on participating in every stage of a particular rally.
So, today, some investors are betting AI stocks have room to run, while Burry takes a bearish stance. The safest and best bet for the rest of us is the following: Invest in quality stocks across industries at reasonable prices and hold on for the long term. This strategy defies short-term trends and market downturns -- and has helped many investors build wealth over time.
