Michael Burry has really been making headlines since he closed up shop over at Scion Asset Management with the belief that the broad stock market could be in for a rough couple of years. Undoubtedly, shutting down his hedge fund has also allowed him to be more vocal, with his Cassandra Unchained newsletter. With low expectations for market returns moving forward and ongoing AI bubble concerns, it’s no mystery as to why every comment Burry makes has been food for thought and a hot topic for discussion.
While the AI trade has shown signs of losing momentum, we’ve yet to see a big AI bubble burst, and it’s unclear whether we will in the near future.
Michael Burry is worth listening to
Either way, Burry has more flexibility, privacy, and the means to communicate with investors like never before. So, if we are in for a meltdown within the corners of the AI trade, perhaps Burry will be less of a Cassandra, who makes accurate prophecies that nobody listens to, and more of a guide for investors looking to navigate today’s pricier market environment more cautiously.
Undoubtedly, with Warren Buffett now officially retired, perhaps Burry’s Cassandra Unchained is what new investors need to navigate a decade ahead that might see prospective returns that are far less than those enjoyed in the previous 10 years. With the S&P 500 up a staggering 260% in the past decade, it’s going to be incredibly tough to top such returns for the 10 years ahead.
Either way, Burry’s AI bubble beliefs are really nothing new, given that the man bet against the semiconductor stocks by way of an ETF just a few years ago, only to close the bet as the chip stocks continued to roar higher in their impressive bullish ascent. As it turned out, it was the right call to cover, given the run that chips would have in 2024 and 2025.
Burry made a genius bet in the energy scene
More recently, Burry has made some very smart moves, one of which only recently paid off amid the U.S.-Venezuela situation. Shares of Velera Energy (NYSE:VLO | VLO Price Prediction) had a big week, briefly surging over 10% on the Nicolas Maduro capture before pulling back a bit. As the U.S. looks to rebuild the Venezuelan oil industry, heavy crude refinery plays such as Valero Energy stand to gain as production picks up.
While oil prices weren’t as moved as one would think, the U.S. energy plays certainly got a boost, while Canadian energy firms took quite a big hit. Either way, Michael Burry has reportedly been an investor in shares of Valero Energy since 2020. It’s been a huge winning bet, even before the recent surge. With shares now up more than 200% in five years, it’s clear that Michael Burry still has the ability to make incredible calls that few others are capable of.
Clearly, Burry’s expertise spans far beyond the housing market. But the big question is whether his accurate calls will translate well in the wild world of tech and AI. Indeed, AI is a different beast than energy and housing. But when it comes to valuation, similar rules must apply, even if growth rates stand to be off the charts, right?
Even if there’s no AI bubble, Burry’s bets might still pay off
Though I’m impressed with Burry’s applause-worthy Valero bet, I’m not so sure if he’s right to time an AI bubble. Though I do think his big bets against Palantir (NASDAQ:PLTR) and Nvidia (NASDAQ:NVDA) have the potential to pay off in a big way, especially given the potential for each stock to give up some ground after the past few years of euphoric gains. In a previous piece, I noted the possibility that most AI stocks, as well as the market, could hold up as some of the overheated names, like Palantir, were to reverse course.
If there is an AI bubble and it’s on the verge of bursting, Burry’s bearish bets will surely pay off. However, even if the AI trade stays intact or corrects, Burry’s bets might also pay out handsomely, given the potential for amplified downside in Palantir and Nvidia, both of which are far more volatile than the broad market with betas well above 1.50.
The bottom line
So, in short, time will tell if Burry is right about an AI bubble. Even if he’s wrong in a broader sense, his bets could still wind up in the money in a big-time way. For investors, I think it’s important to stay diversified so one can do relatively well regardless of how the AI boom ends.
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