AI Investors Sitting on Big Gains Face a Choice: Let Winners Ride or Heed Michael Burry’s Bubble Warning

AI investors who are sitting on colossal gains are facing a difficult dilemma nowadays, with semi stocks heading into overdrive while other tech titans look to experience massive breakouts of their own. As the market starts roaring loudly again, those sitting on big profits (perhaps some with more than 100% gains in the past year on certain AI stocks) must ask themselves if it’s time to ring that register, keep riding the winners higher, or, perhaps the riskiest, boldest move of all, add to the heated position.

Indeed, buying after a big gain will drive one’s cost basis up through the roof and leave one at greater risk of experiencing major pain once the tides turn. But, at the same time, it feels like the AI revolution is still underestimated. Anthropic’s Claude Mythos is a massive deal.

And I believe it should cause the AI bubble watchers to revisit the drawing board. But just because AI is the real deal doesn’t mean it’s all right to pay any price for a semi stocks that will be supporting the revolution. Indeed, most paths go through just a handful of semi stocks. And that makes them obvious winners as demands keep moving higher and higher.

Let it ride has worked out well. But what about all the cautious warnings?

In any case, it’s a tough call to make for those sitting on big AI gains. But it’s certainly a nice problem to have. It certainly beats having to decide whether or not it’s time to cut one’s losses in a SaaS company that’s down big-time from its all-time highs! In any case, Dr. Michael Burry, the brilliant contrarian who bet big and won in The Big Short days, has not shied away from sharing his views on the AI trade.

He’s betting against the semis and some of the hottest names on the market. With shares of Nvidia (NASDAQ:NVDA | NVDA Price Prediction) breaking out again, it feels like it’s just a matter of time before Burry covers and is dismissed by the crowd as being early once again with his bearish bets. Indeed, Burry’s timing has not been perfect with his bearish put options.

While I wouldn’t copy the man’s trades, I would, at the very least, consider what exactly he’s been saying. As a bull on the AI trade, it’s worth it to consider the bear perspective as well! If your thesis holds up against the bear points, perhaps you’ll decide it’s best to stay long the tech trades, even as traditional valuation metrics suggest severe overvaluation.

Semi stocks might be far riskier than other AI stocks

With Burry going against Nvidia and the broad basket of semi stocks with bearish put options, I believe that there’s a sign that chips may be getting too hot to handle, at least for value-conscious investors. If there’s a stock, like Nvidia, that’s up nearly 150% in two short years or 1,500% in five years, it’s only natural to think about taking chips off such a heated chip trade, given the bear-case scenario that might unfold.

Personally, I think Nvidia isn’t as expensive as its stock chart suggests. But trying to forecast where margins and sales growth (which are sky-high) will go next is hard to do. Timing cycles is really hard, especially if we’re entering a period where the past rules of cyclicality no longer apply, given the magnitude of the technological boom we’re experiencing.

Despite Burry’s bearish bets, the man does not appear to be 100% against AI. His bet on Microsoft (NASDAQ:MSFT), I think, seems to signify that how one chooses to bet on the trend is the most important thing. Does it make sense to put more of one’s chips in a lower-cost, neglected relative value play in AI rather than spreading across numerous bets? I do think so.

While I’d be more inclined to take profits where there are profits to be had while rotating them into value plays, I do completely understand why one would want to let the winners keep winning, provided one can handle the inevitable cooldown periods and, of course, amplified pain come the next market-wide sell-off.