Has Contrarian Michael Burry Found His Next Big Short? The Famed Investor Is Betting the Farm Against an Artificial Intelligence Stock That Is Up 1,290% Over the Past 5 Years

Key Points

Michael Burry, who now runs Scion Asset Management, has been skeptical about the market's rapid climb for several years now. Recently, Burry disclosed a large bearish position in one of the hottest artificial intelligence stocks. 10 stocks we like better than Palantir Technologies ›

Michael Burry of Scion Asset Management made a name for himself as one of the few investors who spotted the housing bubble of the mid-2000s before it popped, triggering first the mortgage crisis and then the Great Recession. He and his fund at the time reaped hundreds of millions of dollars in profits after purchasing credit default swaps on mortgage-backed securities that paid out when the value of those securities cratered. Burry, along with a handful of other investors who saw the mortgage crisis coming, was a subject of the bestselling book The Big Short, which was later made into a movie of the same name.

Burry has been bearish about the U.S. stock market broadly for several years now. But in his recent call, the former Stanford neurology resident seems more bearish than he has in the past -- or at least, he's being more outspoken about it. And in the third quarter, Burry made a big bet against a high-flying artificial intelligence stock that is up by more than 1,290% in the past five years.

Burry seems more committed to this short

In a recent 13F filing, Scion Asset Management disclosed that in the third quarter, the fund purchased 5 million put options with a notional value slightly over $912 million on AI data analytics company Palantir(NASDAQ: PLTR). Scion also purchased 1 million puts on Nvidia. The firm further sold many of its holdings from the second quarter and purchased several new long positions as well. Burry has frequently changed the composition of Scion's portfolio in recent years.Image source: Getty Images.

He has been on and off of X, posting infrequently, sometimes when he is concerned about the state of the market. Interestingly, though, he seems a lot more outspoken lately. He's posted several tweets in recent weeks to assert that the market is in a bubble.

One of these tweets included several charts. One chart showed that cloud growth has slowed in recent years compared to the years prior; another showed that U.S. technology capital expenditure growth has reached a level not seen since the dot-com bubble; and the third showed how spending from Nvidia and OpenAI is fueling much of the AI sector.

I find it interesting that Scion submitted its 13F to the Securities and Exchange Commission before the required deadline. Banks, brokers, and institutional-scale investment managers like Burry must report on the contents of their portfolios as of the end of each quarter, no later than 45 days after the end of that quarter. For the third quarter, that would be Nov. 14. Many funds and managers wait until the very last day before they give the public that glimpse into their portfolios. For instance, Warren Buffett's Berkshire Hathaway never seems to file its 13Fs before the day of the deadline. Scion also filed its 13F on the same night Palantir reported earnings, another interesting coincidence.

Story Continues

An obvious short that has been hard to short

The idea that Palantir is overvalued is not a novel concept. The stock is up 156% this year and trades at close to 300 times forward earnings.

"If this was the greatest company that was ever created and we gave it the same multiples as, let's say, Nvidia in 2023, the stock still can get cut by two-thirds. And that would be like 35 times sales," Citron Research's Andrew Left, another famous short seller, said back in August.

But shorting an AI stock like Palantir in what has been more or less a three-year bull market is a brave undertaking. The stock has garnered incredible investor enthusiasm, and the business operates in a hot sector that many believe will change life as we know it.

Palantir's third-quarter earnings results beat analysts' consensus estimates on both the top and bottom lines, and management also guided for higher revenue in the fourth quarter than Wall Street had expected. CEO Alex Karp expressed his displeasure with short sellers like Burry during an interview on CNBC.

"The two companies he's shorting are the ones making all the money, which is super weird," Karp said. "I do think this behavior is egregious, and I'm going to be dancing around when it's proven wrong."

Very few people doubt the capabilities of Palantir's software. The company's AI technology can gather data and use it to inform decision-making in ways that were never possible before. Numerous government departments and commercial businesses are now using the technology, and seemingly to great satisfaction. But every asset still has a price, and I personally don't feel comfortable investing in Palantir stock at this kind of valuation.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.

Has Contrarian Michael Burry Found His Next Big Short? The Famed Investor Is Betting the Farm Against an Artificial Intelligence Stock That Is Up 1,290% Over the Past 5 Years was originally published by The Motley Fool

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