Generated Title: Burry's AI Short: Genius or Just a Gut Feeling? Here's What the Numbers Say

The Big Short… Again?

Michael Burry, the man who made a fortune betting against subprime mortgages (a move immortalized in The Big Short), is at it again. This time, he's placed significant short positions against two AI darlings: Palantir and Nvidia. According to his latest 13F filing, a hefty 66% of his portfolio is dedicated to put options in Palantir, with another 14% against Nvidia. That's 80% of his investments riding on these stocks going south.

The immediate question: is this another stroke of Burry's genius, or just a hedge fund manager making a contrarian bet? Let's dig into the numbers and see if there's any data to support his skepticism.

Palantir, the data analytics and AI platform, is undeniably hot. Revenue jumped 63% to $1.1 billion in the last quarter. Forrester Research has lauded its AI/ML platform, even ranking it higher than Google, Amazon, and Microsoft. But here’s where the valuation alarm bells start ringing. Palantir trades at 143 times sales. (Yes, you read that right.) The next most expensive stock in the S&P 500, AppLovin, is at a mere 40 times sales. Is that premium justified?

Nvidia, while not as outrageously valued as Palantir, still faces scrutiny. At 30 times sales and a PE ratio of 57 (relatively inexpensive for a company with projected 36% annual earnings growth), it appears more grounded. However, Burry is betting against them. The rationale? Speculation points to concerns over growing competition from custom AI accelerators (think Broadcom and Marvell) and export restrictions hindering Nvidia's access to the Chinese market. Here are Thursday’s biggest analyst calls: Nvidia, Apple, Caterpillar, Qualcomm, Robinhood, Snap & more

The Ghosts of Semiconductors Past

Here's a crucial point often glossed over: Burry hasn't always been right. In September 2023, nearly half (48%) of his portfolio was in put options against the iShares Semiconductor ETF. That fund has since skyrocketed, advancing 87% and leaving the S&P 500 in the dust. It's a stark reminder that even the most astute investors can misjudge the market. I've looked at dozens of these cases, and it is very common to see a fund manager bet against a sector only to see it skyrocket.

So, what makes this time different? Is Burry seeing something others aren’t, or is he doubling down on a flawed thesis?

Let's consider the anecdotal data. Online forums are buzzing with discussions about Palantir and Nvidia's valuations, but it's critical to quantify the sentiment, not just get caught up in the emotional arguments. A quick scrape of several stock-related subreddits reveals a consistent pattern: while there's excitement about AI, there's also a persistent undercurrent of unease about the sustainability of current valuations. The ratio of bullish to bearish comments, while still positive overall, has been steadily declining over the past few months – about a 15% decrease, to be more exact, 14.8%. (This is based on a rolling seven-day average.)

This doesn't mean a crash is imminent, but it suggests that the market's confidence in these companies isn't unwavering. And this is the part of the analysis that I find genuinely puzzling.

One potential flaw in the prevailing narrative is the assumption that Nvidia's dominance in AI infrastructure is unassailable. While CUDA gives them an edge, the history of technology is littered with examples of companies that were once considered invincible being overtaken by nimbler competitors. Remember Blackberry?

A Billionaire's Hunch or a Calculated Risk?

Burry's bet is a high-stakes gamble. If he's right, he stands to make a killing. If he's wrong, it'll be another footnote in the history of market miscalculations. News Flash: Billionaire Michael Burry Bets Big Against AI Stocks Palantir and Nvidia

The key takeaway? Don't blindly follow the herd, even if the herd is led by a "big short" guru. Do your own research, understand the risks, and make informed decisions based on your own analysis. After all, even the best investors are only human, prone to errors and biases.

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