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Written by Adria Cimino for The Motley Fool
AI stocks have soared in recent years, leading gains in the S&P 500.
Burry has been betting against the sector, with short positions in some of the industry’s biggest names.
The S&P 500 has climbed for the past three calendar years, and in spite of various headwinds this year, it's continued to trek higher. Leading this march are companies that play a major role in the artificial intelligence (AI) space. And investors have generally been piling in, with the idea of benefiting from this boom today and into the future.
But one expert investor in particular has taken just the opposite position. Michael Burry, who shot to fame after predicting the U.S. subprime market crash, increased his bets against AI stocks last year and, in recent times, reiterated his concerns and adjusted his positions accordingly.
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Now, just hours ago, Burry delivered his bluntest warning yet regarding AI stocks. Should you listen? Let's take a closer look.
First, let's start by zooming in on Michael Burry. The hedge fund manager, seeing weakness in the U.S. housing market in the early 2000s, placed massive bets against it. His moves, controversial at the time, ended up making $700 million for his clients. The story of Burry and others who predicted the housing market collapse was documented in the movie The Big Short several years later.
As mentioned, Burry has been bearish on AI stocks for well over a year, betting against some of the biggest names in the space, from Nvidia to Micron Technology. He's written about a potential bubble forming and a crash that eventually may unfold. And he's just grown even more bearish on the space, issuing his bluntest warning yet.
Against this backdrop, Burry shifted to put options from short positions in certain AI stocks, a move that could result in greater gains over a shorter timeline.
Burry made the following moves, according to the CNBC report:
So, with this, Burry delivers a blunt warning to investors: A crash may be coming, and sooner than expected. Should you listen? Yes, it's key to listen to the comments and thoughts of successful investors such as Burry; considering a variety of views helps us to understand the risks and opportunities present in the market at a given time.
But when investing, it's important to remain focused on the long term. Even if the prices of some AI stocks have climbed too far, too fast in relation to current AI spending levels and the revenue opportunity right now, and AI stocks go on to crash, this doesn't mean the AI story is over. AI is just beginning to be applied in the real world to solve problems and help companies gain efficiency. Any potential decline in AI stocks doesn't change the overall growth story.
These companies could see a pause in momentum and then return to growth in the months to follow. All of this means that, as always, investors should buy stocks at reasonable valuations and hold through market turmoil to benefit from long-term growth. And if Michael Burry is right and a bubble may soon burst, it might be an opportunity to pick up exciting AI players at bargain prices.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology, Nvidia, Palantir Technologies, and iShares Trust - iShares Semiconductor ETF. The Motley Fool has a disclosure policy.