Dr. Michael Burry of The Big Short fame might serve as a brilliant guide for an unprecedented AI hype-driven market environment. While the man has been known to be a bit early to some of his trades, including bearish bets against the iShares Semiconductor ETF (NASDAQ:SOXX), which has managed to move past its early-summer rough patch en route to new all-time highs, I do think that his heavy skepticism of the AI rally is worth diving deeper into.
Of course, that’s not to say that lightning will strike again, and according to schedule, especially since a lot of retail investors have similarly placed big bearish bets of their own against the semiconductors.
Whether we’re talking about the Direxion Daily Semiconductor Bear 3X Shares (NYSEARCA:SOXS) or some other bearish security betting against the industry or individual names (think those in the memory and storage scene), there is no mystery that the blistering-hot semiconductor industry has been ripe for profit-taking and even bearish bets given the incredible past-year parabolic rise and the high likelihood that it will end with a pretty harsh correction (maybe even a crash) at some point.
Catching cycles is tough, though, especially when valuations on some of the most overbought stocks on the market are… dare I say cheap? And then there’s the question as to whether semiconductors have graduated from cyclical plays to structural ones in this multi-year (or even multi-decade) AI revolution.
While the risks are too hefty to follow Dr. Burry’s bearish bets against the semis, I do find his long bets to be very tempting to follow. Here are three of the most intriguing of his recent round of personal buys:
Adobe
Adobe (NASDAQ:ADBE | ADBE Price Prediction) stock looks to be one of the big victims of the SaaS-pocalypse. Indeed, generative AI could threaten the livelihoods of creative professionals, many of whom subscribe to the Adobe Creative Suite. But just because Adobe looks to be ill-positioned does not mean it’ll go down without a fight.
It’s not just oversold, it’s beyond oversold at this point, now down close to 42% year to date and around 72% from all-time highs. As AI gets integrated into Photoshop, Premiere, and across the suite, the big question is whether the firm can turn AI from an existential threat into a source of a moat. When you look at the numbers, there’s a bit of a disconnect between the reality of the fundamentals and what the stock’s saying.
Adobe won’t be an easy one to own, but at 11.1 times trailing price-to-earnings (P/E), shares are the cheapest they’ve ever been. As one of Burry’s more recent value bets, I’d certainly give the fast-falling name a second look. With backlash against AI slop, perhaps it’s names like Adobe that augment people with AI tools that could be in for an epic comeback.
Alibaba
Alibaba (NASDAQ:BABA) is another misunderstood name that actually might provide investors with a dirt-cheap entry to the AI race by way of China.
Sure, China’s economy is in a rough spot, and geopolitical risks aren’t going anywhere. Over the past year, such concerns have been well-known, all while Alibaba has advanced its AI firepower.
Still down around 66% from its peak, with a 16.5 times trailing P/E, I think Burry is right to give the name the benefit of the doubt, especially as it moves at blazing speed with robotics and new AI-powered businesses that might be very monetizable.
PayPal
The market has fallen deeply out of love with PayPal (NASDAQ:PYPL), with shares down close to 87%. That’s an epic crash, and the bottom might not be in yet following the recent wave of cuts and turnaround at the executive level. There are a lot of moving parts with the name, but at the end of the day, I think PayPal is on the road to becoming more efficient.
The new CEO faces a difficult challenge, but I do think the big cost-saving plan and expansion of Venmo (maybe a spin-off?), as well as PayPal Plus, could be key catalysts that might just spark a turnaround.
Payments is a fiercely competitive place to be, but at these valuations, it feels like PayPal’s new top boss will go down with the ship. I don’t think that’ll be the case, not while shares have such a low bar ahead of them with a 7.9 times trailing P/E multiple. Such a multiple would have been unheard of just five years ago.
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