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Michael Burry, made famous by the film The Big Short, has made some of the most incredible short bets in the history of the market. Indeed, the Great Financial Crisis was a big one-time event (hopefully), and Burry was extremely prescient in calling what was an incredible bubble top at the time.
However, many investors will note that timing short positions is the difficult part, and even Burry would likely agree that he didn't get the timing right on many of his bets (including his bet on the GFC).
But with a staunch view this time that the AI-led rally in major semiconductor makers may be coming to a close, let's dive into the more recent news that Michael Burry has decided to add to his existing short bets on key names such as Nvidia (NVDA) and Micron (MU), along with online betting stocks.
Why Short These Stocks Now?
Michael Burry is clearly of the view that the momentum we've seen for years in the AI buildout (which requires plenty in the way of memory and chips) may be coming to an end. Valuation multiples have expanded to eye-watering levels, and there are plenty of investors who are now starting to balk at these prices.
I'm going to focus on Micron here for a minute. Looking at the price action above, it's clear that Burry has been onto something, at least from a near-term momentum perspective. Over the past month, shares of MU stock have sunk from more than $1,100 per share to around $812 at the time of writing.
Notably, the stock charts of many of the other names Burry has bet against look similar. The air may be seeping out of the proverbial bubble right now, but we've also seen plenty of near-term reinflationary spikes in this bubble take these stocks higher. That's what intrigues me (and many market participants) the most right now—it's the high-stakes reality that a near-term surge in AI-related stocks could quickly make Burry's amped-up short position very unprofitable. There's plenty of risk to go around in the short selling game, but even more when we're in the midst of a secular and cyclical bull market driven by intense demand.
What Do Micron's Fundamentals Tell Us About Its Future?
Micron's fundamentals look quite attractive on the surface. Trading at just 13 times forward earnings, it's difficult to find a mega-cap tech name with outsized exposure to the AI growth trend trading at such levels, even after the market-wide dip we've seen.
The company's return on equity of more than 71% stands out to me as one of the best ratios in the market right now. I doubt that number will change much in the coming quarters, though Burry and others appear to be betting on the backdrop changing very significantly moving forward. We'll have to see what ultimately comes on this front, but that's a very interesting contrarian view on a company few could call overvalued after its recent revenue and earnings surge.
Burry's betting that the era of ultra-high growth on the top and bottom lines for a company like Micron is coming to an end. I'm not going to ring the death knell yet, and I think there could be more growth to come. But this is a particularly high-profile name to bet against, so this move is one that's going to generate plenty of investor scrutiny.
What Do Wall Street Analysts Think of This Bet?
Overall, Wall Street analysts appear to be less on board with Burry's view than some might think. In fact, the current market-wide analyst rating on MU stock is a “Strong Buy,” with a consensus price target of nearly $1,500 per share on this name (implying upside of around 70% from current levels).
That's some impressive upside, and there are reasons why Micron's price target is set at this level. For one, the company's stock price was approaching the $1,500 level during its most recent surge. But given how far and how fast Micron stock has rallied over the course of the past year (that chart above really is a thing of beauty), the reality is that some growth investors are clearly looking to lock in gains.
We'll have to see what the ultimate trajectory for MU stock is over the coming quarters. While I'm not going to bet against Burry personally, this is one particular short bet I'm going to shake my head at for now. To me, Micron simply looks too cheap at current levels to go much lower from here, outside any market-wide news that the supposed supply glut many are starting to see is really taking hold.
