Dr. Michael Burry, the genius who made the movie-worthy bet against the housing market in the face of the Great Financial Crisis, has been quite active about his recent bets. The man shut down Scion Asset Management and is now free to voice his concerns and make big, bold bets on the short and long side.
As a value investor looking to go long rather than short in a market environment that still has plenty of out-of-favor names that haven’t participated in the market rally off the March lows, I’m more intrigued by what Burry has been buying rather than what he’s been betting against.
With the SaaS-pocalypse causing a panic-driven sell-off to start the year, perhaps it’s the software names that stand out as the ultimate contrarian trade for those with a more tempered view of the AI “boom.” So, when news broke that Burry was buying up some of the least-loved names in the software scene, I became more than willing to give the battered names a closer look.
It’s tough to catch a falling knife with a long on the way down, just like it is to time a peak with one’s short. That said, I do think that long-term investors might have something of interest in today’s software bargain bin now that Burry’s had a good helping. Here are my top two favorites of the recent Burry longs:
Microsoft
Burry’s bet on Microsoft (NASDAQ:MSFT | MSFT Price Prediction), I think, is the easiest to get behind while it’s still in a bear market. Shares are just off over 20% from their highs, and with one of the widest moats in enterprise software (the Office suite isn’t about to be replaced anytime soon, especially as the firm pivots with Copilot), I just don’t see the software side of the business experiencing the same degree of pressure as some of its smaller rivals.
It doesn’t just have the AI prowess that, in due time, I think will extend beyond ChatGPT; the firm owns the Azure growth engine, which stands out as a lower-risk, at least in my view and at these valuations, way to score long-term AI upside.
The big takeaway is that the stock’s still cheap at 26.8 times trailing price-to-earnings (P/E), even if there is a bit of uncertainty about how the enterprise titan is depreciating its GPUs. In the long run, I don’t think it matters, especially while shares are going for just 22.1 times forward P/E.
Dare I say that AI narrative isn’t being priced into the name at these valuations?
PayPal
The market has seemingly forgotten all about PayPal (NASDAQ:PYPL), which is now down close to 84% from its pandemic-era peak in 2021. Of course, there’s plenty of competition in digital payments, but at 9.1 times trailing P/E, such pressures seem to have been baked in and then some, at least in my view. Though it’s been a slog in recent years as shares have found a way to keep moving lower, I do think the deeply-discounted multiple and potential catalysts might make for a fairly low-risk turnaround story.
Whether it’s the activist investor rumors, the ability to leverage AI to improve the customer experience, better targeting for ads (PayPal Ads ID just launched), or the global potential behind its PYUSD stablecoin, there are so many potential drivers that could spark a turn. And with such a rock-bottom multiple, I think the odds heavily favor the longs, like Burry, as PayPal looks to remove friction via agentic payments and the low-friction Fastlane checkout.
In short, PayPal has the right drivers to get customers spending more with it again, even amid rising competition and consumer uncertainties. As long as it can use tech to add value to the customer experience, I think the firm can find its way again. For the braver investor willing to go against the grain, perhaps PayPal might be the best deep-value deal there is in all of software.
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