Michael Burry of The Big Short fame has taken quite a hit in recent sessions, with shares of Nvidia (NASDAQ:NVDA | NVDA Price Prediction) breaking out to hit a new all-time high to go with a jaw-dropping $5.26 trillion market cap. The stock is coming in hot, and that makes Burry’s latest bearish bets seem quite ill-timed. While time will tell if Burry is forced to cover or if he’ll keep adding to his position, it’s becoming quite apparent that Burry might, once again, be a bit early to the big rollover.
Burry sees a bubble, but Nvidia’s price action suggests a real AI revolution
Even if Burry winds up right about his AI bubble thesis, I’m just not sure if he’ll be able to make money betting against the likes of Nvidia, especially now that it’s got its weight off its back and the past ceiling of resistance of just under $200 acts as a new floor of support. With Nvidia stock and various other semiconductor names doing more than their fair share of heavy lifting for the Nasdaq 100 and S&P 500 in recent weeks, questions linger as to whether the expensive tech stocks that Burry was talking about have only gotten even more expensive.
Of course, during their slump, the big hyperscalers looked quite cheap, especially relative to their AI tailwinds and potential earnings growth trajectories. Still, Burry highlighted the depreciation schedule (five to six years of life from GPUs instead of three) as potentially making hyperscalers like Meta Platforms (NASDAQ:META) less compelling than their price-to-earnings (P/E) ratios made them out to be. Add the overall bubbliness of the circular deal-making and the euphoria surrounding certain corners of the AI trade, and it’s easy to dismiss today’s tech deals, especially as they get off the tarmac.
While I get the whole argument about the accounting decisions made by some of the hyperscalers Burry shone a light on, I do think that it’s more about whether agents and next-generation applied AI will deliver than the specifics about GPUs purchased to fund the cause. At this juncture, it looks like Jensen Huang, Nvidia, and the market are having their way while Burry looks to consider his next move.
Even if the bearish bets on Nvidia go south as shares head north in a hurry, the Palantir (NASDAQ:PLTR) trade still seems to be going quite well. Indeed, it can be hard to time the peak in hardware, but when it comes to software, I do think Burry might have more of an edge.
Betting on the extremes in tech is riskier than you think
As Burry bets against expensive AI software, like Palantir, whose shares go for more than 227 times trailing P/E, while favoring beaten-down “disrupted-by-AI” software, including the likes of Adobe (NASDAQ:ADBE), Burry is taking on the ultimate contrarian stance. But whether or not it’s the right call is the big question. I think timing the bottom in software might be just as hard as timing the top in a GPU titan like Nvidia.
And while I can’t speak for the entire tech sector, I do think there are pockets of overvaluation, even severe overvaluation, as well as fairly-valued plays and bargains. It all comes down to where you look and what your expectations are with the next phase of AI. Perhaps the frothier tech plays aren’t as expensive as they seem, while many of the hard-hit bargains aren’t as rich with value as their rock-bottom multiples suggest.
Either way, I’m in no rush to bet on the lowest-P/E names in software, nor am I looking to bet against the fastest risers, like Nvidia, especially on a breakout.
Instead, I’d much rather stick with a name like Meta Platforms, which is going for just north of 22.0 times forward P/E. It’s not on any valuation extremes right here. But what is extreme, I believe, is the monetization potential once Zuckerberg and company unlock the power of AI agents.
In the meantime, perhaps it’s best to just watch Burry place his bold bets from the sidelines rather than following into moves that not only require being right, but getting the timing right.
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