Famed short seller Michael Burry – who made a killing betting against the US housing market in 2008 – is shorting a number of Nasdaq AI stocks at the moment. Names he’s betting against include Nvidia (NASDAQ: NVDA), Palantir (NASDAQ: PLTR), Micron (NASDAQ: MU), Oracle, and Nebius.
Now, I hold Burry in high regard and often agree with his calls. However, with at least three of his shorts, I’m happy to take the other side of the trade and buy.
Nvidia
Let’s start with Nvidia. Here, he has a stack of put options, which give him the right to sell the stock at a certain price.
His view is that Nvidia’s AI success is unsustainable. And he’s criticised the company’s multi-billion-dollar AI financing loops and ecosystem arrangements.
I’m pretty convinced that Nvidia’s share price is going to keep rising though. To my mind, demand for the company’s AI chips is likely to remain high for a while.
One major buyer of its chips in the next few years is going to be SpaceX. Recently, Elon Musk essentially said that he’ll buy every Nvidia GPU he can get his hands on.
At current levels, Nvidia looks cheap. With analysts expecting earnings per share of $12.90 next financial year, the price-to-earnings (P/E) ratio is only 17.
I’m a buyer at that valuation. Recently, I’ve been adding to my position in preparation for a move higher.
Palantir
Next, we have Palantir. This is an AI software company that helps organisations get more out of their data.
Burry’s view here is that the company is wildly overvalued. He believes the stock is in bubble territory so he’s snapped up puts to capitalise if the stock falls.
Now, there’s no doubt that Palantir is expensive. Currently, it sports a P/E ratio of 111, which is very high.
However, when you look at the growth here, that valuation starts to make sense. Last quarter, the company generated year-on-year revenue growth of 93%, which is unheard of for an established company.
It’s not just a growth story however as there are also profits. Last quarter, its rule of 40 (revenue growth plus operating margin) was 155, which again is unheard of.
Given the level of growth, and the fact that the company is profitable, I’m willing to take on the valuation risk (I’ve bought the shares recently). I acknowledge that a slowdown in growth could hurt the stock, but taking a long-term view, I reckon the company will grow into its valuation.
Micron
Finally, we have Micron. It’s a leading memory company.
Burry’s argument here is that memory is a cyclical (boom and bust) industry. He reckons the market is overestimating the longevity of the current demand cycle.
To be fair, his concerns are valid. In the past, memory has been very cyclical.
So, there’s a real risk that demand could moderate. This could lead to less pricing power for Micron and much lower growth.
However, there’s also a chance that demand for memory could remain high for years. After all, it’s a crucial component for generative AI.
That’s why I bought the stock recently – I want some exposure just in case the memory boom runs for years. I’ll point out that I’ve kept my position small to manage risk – if Burry turns out to be right on Micron my portfolio won’t take a big hit.
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Edward Sheldon owns shares in Nvidia, Palantir, and Micron.
This story originally appeared on Motley Fool
