Michael Burry, the celebrated hedge fund manager who famously predicted the 2008 housing crash, is making headlines again. This time, his target is the red-hot artificial intelligence (AI) sector. After publicly warning of an "AI bubble," Burry has now disclosed a specific bearish bet against tech giant Oracle Corporation, the company that propelled its founder Larry Ellison to become the world's fifth-richest man.
Burry's Bearish Bet on Oracle's AI Ambitions
According to a Bloomberg report on January 10, Burry revealed in his paid newsletter, 'Cassandra Unchained,' that he owns put options on Oracle's shares. A put option is a contract that profits if the stock price falls. This disclosure came after market hours on January 9. Burry explained his position, stating he does not like how Oracle is positioned or the investments it is making. "It did not need to do what it is doing, and I do not know why it is doing this. Maybe ego," he wrote in response to a reader's query.
This move aligns with his broader scepticism. Before shutting down his Scion Asset Management firm in early November, Burry had also taken bearish positions on AI darlings Nvidia and Palantir Technologies. He described Nvidia as "the most concentrated way to express a bearish view on AI" and noted that its put options were relatively cheap due to the stock's widespread popularity and lack of doubt among investors.
Oracle's AI Rollercoaster and Debt Burden
Oracle's stock has been on a wild ride, heavily influenced by AI hype. In September, its shares surged a staggering 36% in a single session after the company issued a bullish forecast for its AI-linked cloud business. However, the enthusiasm was short-lived. The stock ended the year roughly 40% below its September peak.
The decline was fueled by several concerns highlighted in the report. These include rising capital expenditure (capex), questions over some cloud deals, and a swelling debt load linked to aggressive data-center expansion for AI. Oracle currently carries about $95 billion in outstanding debt, making it the largest corporate issuer outside the financial sector in the Bloomberg high-grade index.
Why Burry is Selective With His AI Shorts
Interestingly, Burry's bearishness is not a blanket stance against all tech giants benefiting from AI. He clarified that he has not shorted companies like Alphabet (Google), Meta Platforms, or Microsoft. His reasoning is strategic. He believes these are not pure plays on AI.
"If I short Meta, I’m also shorting its social media and advertising dominance. If I short Alphabet, I’m shorting Google Search... If I short Microsoft, I’m shorting a global office productivity SaaS goliath," he explained. According to Burry, these diversified giants can absorb losses from potential AI overcapacity and write down assets while remaining dominant in their core, profitable businesses. "These three will not go away," he added.
His critique extends to pure AI players as well. He stated he is ready to short OpenAI at a $500 billion valuation. His overarching view is that the current rally is built on a "circular-feeding structure" among AI-related companies, creating a bubble-like scenario.
Key Takeaways for Indian Investors
Michael Burry's latest moves offer crucial insights for market watchers, especially in India where tech and AI stocks attract significant investment.
- Valuation Caution: Burry's actions underscore growing concerns about overvaluation in AI-themed stocks. Investors should look beyond the hype and scrutinise fundamentals.
- Debt and Strategy Matter: His short on Oracle highlights the risks associated with high debt levels and potentially questionable strategic investments made in pursuit of AI growth.
- Differentiate the Players: Not all companies riding the AI wave face the same risk. Diversified tech giants with strong core businesses may be more resilient than pure-play AI firms in a downturn.
While Burry's predictions are not always immediately right, his track record commands attention. His bearish stance serves as a stark reminder for investors to conduct thorough due diligence, particularly in sectors experiencing frenzied bullish sentiment like artificial intelligence.
