At first, I was a bit skeptical of the barrage of bearish bets placed by Dr. Michael Burry, the man made famous by The Big Short film. Indeed, it can be pretty dangerous to go looking for that next big short, especially in a market climate that continues to favor the bulls. Not to mention, shorting stocks outright has become dangerous in the post-meme stock era, where the shorts can be squeezed out in excruciating fashion.
In any case, Dr. Burry’s bearish put options have, for the most part, landed pretty well. And I think there’s a good chance that he’s still early in the game. On the surface, it feels like the man is just looking to bet against the AI bubble. When you look at the moves he’s been making, though, I think it’s more apparent that he’s betting on the bubble within AI.
Michael Burry isn’t just shorting
His long position in Microsoft (NASDAQ:MSFT | MSFT Price Prediction), an undervalued and neglected AI champion (at least in my view), seems to signify that there is still value to be had in AI, but not everything in the AI waters is going to be a safe bet.
In any case, Dr. Burry’s recent long bets on the sports-betting plays, I think, are unrelated to the AI boom, but do seem to target another boom that most other investors may be ignoring as they themselves gamble on the hottest stocks in AI (most notably, the DRAM stocks).
Indeed, the appetite for gambling and speculation is still quite high despite the lacklustre performance of the sports-betting stocks. It just feels like bettors have taken their disposable incomes to the prediction and stock markets.
Perhaps there’s no smarter way to bet on that than by betting big on sports-betting stocks, rather than seeking to short red-hot momentum stocks, which, while overvalued and bubbly, might not implode within a timeframe that allows one’s bearish bets to be profitable.
The sports-betting stars have gone bust
While I have respected Dr. Burry’s moves, I must say that I haven’t found any that have been worth following until his latest bets on DraftKings (NASDAQ:DKNG) and Flutter Entertainment (NYSE:FLUT). Shares of both sports-betting plays have had their boom days. But, more recently, they’ve gone bust in a big way. And that’s exactly why value seekers, like Dr. Burry, tend to be more than willing to swoop in as investors move on, perhaps to gamble on the hottest of the hot AI stocks.
With a 60% allocation in Flutter, the firm behind FanDuel, and 40% in DraftKings, Dr. Burry is making a bold bet, and one that’s tilted in his favor, at least in my humble opinion. Of course, much buzz has been made about prediction markets and how they’ve stepped on the feet of the big players in the sports-betting market. With guidance moving lower and many bettors growing discouraged by unusually unpredictable results, questions linger as to whether the sports-betting stocks themselves can ever be great bets again.
Indeed, one way to even the playing field is for the two firms to make a deeper dive into prediction markets. But the big question is whether regulators will put hurdles in front of prediction market platforms. If regulators do start cracking down, perhaps the sports-betting plays will rise up again.
Dr. Burry sees room for improvement
Aside from the competitive threats from prediction market platforms, which might fade away at the drop of a hat, Dr. Burry sees past mismanagement and poor capital allocation as an opportunity to shift the cards around to spark a turn. Indeed, the firms can pull back on the marketing spend (how many sports-betting app ads have we already been bombarded with in recent years?), DraftKings and Flutter might actually be able to pull in some seriously impressive profits.
In essence, perhaps Flutter and DraftKings have already acquired enough interest such that they can move into a “year of efficiency,” so to speak. Bettors already know the names. And when they’re ready to place a bet, they’ll know where to go.
Dr. Burry raises some very interesting points, and it’s hard not to feel that much more bullish about the firms and where they could go next now that the price of admission has fallen to the floor.
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