Famous Investor Michael Burry Is Short Nvidia, Palantir, and Tesla. Why I'd Buy 1 of the Stocks, Hold Another, and Sell the Third.

Investor Michael Burry, who gained fame from the movie The Big Short for his prescient call on the housing market collapse, has not shied away from his bearish view on AI and several prominent AI stocks. Among the stocks Burry is short on are Nvidia (NASDAQ: NVDA), Palantir Technologies (NASDAQ: PLTR), and Tesla (NASDAQ: TSLA).

Let's look at why I'd buy Nvidia, hold Palantir, and sell Tesla.

Nvidia: The king of AI at a low valuation

Burry doesn't believe that hyperscalers (owners of large data centers) are getting strong returns on their investments, which will eventually lead them to cut back on their AI infrastructure spending. As the biggest winner from this spending, then, it should perhaps be no surprise that he is short Nvidia. The company's graphics processing units (GPUs) have been the main chips powering the AI boom, and if spending slows, so will its revenue growth.

However, there is no sign that this spending will slow. Hyperscalers have only been increasing capital expenditures (capex), with Alphabet recently increasing its 2026 forecast and saying it will spend significantly more in 2027. At the same time, Taiwan Semiconductor Manufacturing is upping its own spending to build new fabs to keep up with chip demand. A conservative company like TSMC doesn't make this decision lightly, as empty and underutilized fabs are a huge blow to a foundry.

With AI data center spending set to continue booming, Nvidia's stock looks like a buy, trading at a very attractive valuation of just above 15 times fiscal 2028 (ending January 2028) analyst earnings estimates.

Image source: The Motley Fool.

Palantir: A high valuation but huge opportunity

With its stock trading at a forward price-to-sales (P/S) multiple of nearly 39.5 and a forward P/E of 86, it's easy to see why Burry would be short Palantir. However, this is a company that has been growing rapidly and could become one of the largest in the world over the next decade. As such, it is a stock that I'd hold and would look to buy on any significant pullback.

Palantir has arguably become one of the most important AI stocks, as its AIP platform helps make AI more useful in real-world settings. It does this by gathering data across an organization and organizing it into an ontology that it links to processes, concepts, and physical objects. The result is an AI application layer that helps reduce AI hallucinations and allows organizations to use or swap in and out any large language model (LLM) they want.

The company has seen tremendous, accelerating revenue growth, and existing clients continue to invest more in its solutions, as evidenced by its astounding 150% net dollar retention rate. Palantir has a long runway of growth still ahead, and it is not a stock I'd bet against, even with its hefty valuation.

Tesla: A high valuation with challenges ahead

With a high valuation (172 forward P/E multiple) and a struggling business, one stock I agree with Burry that is a sell is Tesla. The loss of lucrative, pure-gross margin regulatory credits from a change in U.S. emissions policies is a huge blow to the company's profitability. Meanwhile, Tesla saw auto sales slump last year after CEO Elon Musk alienated many potential buyers by getting involved in politics.

Tesla is betting heavily on robotaxis and robots to fuel future growth, but both businesses have challenges. Its robotaxi business has struggled with safety issues and expanding, while rival Waymo races across the country. Meanwhile, its robotics business faces the challenge of creating entirely new parts and developing a new supply chain while overcoming technical hurdles.

Tesla has long been a way to invest in Elon Musk's vision of the future, but with his other company, Space Exploration Technologies, also now public, the two stocks are competing with each other for investors' attention, and this has been hurting both stocks. I'd stay away.

Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Nvidia, Palantir Technologies, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has a disclosure policy.