Michael Burry of The Big Short fame has been making quite a few bearish bets across many of the pricier-looking names fitting the AI theme. While it’s too soon to tell whether or not there’s a bubble brewing in AI, I do think that it’s hard not to think that some of the more overheated parts of the AI trade are overbought, overvalued, and maybe overdue for a pullback.
Whether that’s a bubble burst of a pullback or just another 30-50% drop (that still fits the definition of a crash, but it’s less shocking, given the rally in the rearview of some of the hottest AI momentum stocks on the market).
Believe Burry or not, but his track record really does speak for itself. And now that the man can communicate more directly with investors without requiring us to have to wait a quarter until we hear about moves he made around three months ago during Burry’s Scion days, I do think that market watchers may wish to pay more attention to what the man is saying and, more importantly, what he’s been betting on or against.
Of late, some of his recent bets have been going extraordinarily well, and some of the trades he’s pulled off are with surgical precision. After all, he is a real doctor. Any way you look at it, this piece will check in with some of his more recent bets that have really gone his way.
Whether or not the positions are still worth following, though, remains the million-dollar question. Either way, I’d put in the extra due diligence, rather than following anyone, even the great Dr. Burry, into a position, especially if it’s the short side that we’re talking about.
Caterpillar
Caterpillar (NYSE:CAT | CAT Price Prediction) is one of Dr. Burry’s newer shorts, and it’s one that couldn’t have come at a better time, with the industrial now down close to 10% from its highs. Indeed, Burry’s bet seemed to go in his direction right away, with the man betting against the industrial at just over $1,060 per share.
You have to give the man a round of applause for that short. And while Caterpillar is still in the right spot at the right time, as the firm offers heavy machinery (the actual shovels in the ground) to help fuel the great AI data center buildout, that narrative is old and more than priced into the stock.
In my view, the name carries greater risk than the chip plays themselves since such equipment lasts a long time, whereas chips and components tend to need constant replacement. In my view, Dr. Burry has identified a more cyclical, arguably safer way to bet against the whole AI-related CapEx boom.
Though time will tell if the cyclical bust is already coming, I must say that I don’t think paying 48.1 times trailing price-to-earnings (P/E) for the company makes a lot of sense, even for those who think AI is the real deal. In my view, I’d rather go for a structural winner, perhaps the chip makers, than a firm that might already be later on in the cycle. I think Dr. Burry’s Caterpillar short is genius and certainly wouldn’t look to buy shares after the latest correction, as they could still have room to the downside.
Tesla
Dr. Burry has plenty of winning trades under his belt, but the big risk here is that he’s been known to be a bit early on occasion. And if we’re talking about bearish put options rather than a long position meant to be held for years, there are considerable risks for bears to bear. He doesn’t appear to be early with his shorts on Tesla (NASDAQ:TSLA), which he bet against at more than $416 per share. Just a few weeks later, the name is down to $393 and change.
With questionable technicals and a really hefty multiple (357 times trailing P/E), I think Dr. Burry’s well-timed short could look even better in the coming months, especially if rates go up and investors look to newer growth plays as the great AI IPO wave continues moving in.
As for whether it’s too late to follow Dr. Burry’s lead, I’d say I’m not sure. In my view, it’s a riskier short than Caterpillar, given the Elon Musk fans and developments that could arise that send shares through the roof.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks