Michael Burry Is Betting Against Artificial Intelligence (AI). Here's the Case for and Against, and the One Stock I'd Still Own.

Michael Burry first took center stage when he spoke out about the U.S. housing market in the early 2000s, predicting the subprime market crash. The hedge fund manager placed massive bets against the housing market and ended up making $700 million for his clients. Several years later, the movie The Big Short documented his story and the story of other financial professionals who made similar moves leading up to the crash.

Since that time, investors have taken Burry's predictions and investing moves very seriously. Burry closed his hedge fund, Scion Asset Management, last year, but he still invests and regularly shares his thoughts on the market in his newsletter. In recent weeks, he's deepened his bearish view and his bet against artificial intelligence (AI) stocks, saying a crash may happen sooner instead of later.

Investors, including Burry, have expressed concern about the depth of spending by tech companies in the AI build-out. And at the same time, AI stocks have continued to march higher. Here's the case for and against AI stocks right now -- and here's the one stock I'd still own.

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The bull case for AI stocks

It's true that companies, including Amazon (NASDAQ: AMZN) and Alphabet, are pouring billions of dollars into the build-out of AI infrastructure right now. But it's important to keep in mind that the investment hasn't been for possible customers but instead for current demand. It may take these companies time to fully monetize data centers and servers, but with AI still in its early days of use, these players should be on the right path.

And this brings me to my next point. Though the AI boom has been going on for about three years, during most of that time, it was about the training of models and the exploration of AI's capabilities. Today, companies are just starting to put AI to use -- and as AI is put to work on various problems, chips, servers, and general infrastructure are needed. All of this means AI players, from chip designers like Nvidia to the cloud service providers I mentioned above, may benefit from revenue growth well into the future.

Finally, certain AI stocks make great buys today because they are trading at reasonable and often bargain valuations, even as revenue is soaring. A great example is Nvidia, trading at 25x forward earnings estimates, and at the same time, the company forecasts revenue growth of 70% for the next fiscal year.

The bear case for AI stocks

Though demand remains high for capacity to run AI workloads, future revenue still could potentially fall short of expectations. It takes a few years for a cloud company to monetize investment in a new data center, and during that time, a lot could happen. There might be a slowdown in demand, and even if it's temporary, it could weigh on growth at companies that have greatly invested. Pressure on prices of chips and other hardware might be a headwind for certain companies, hurting revenue levels.

Investors also have expressed concern about "circular financing," which involves an AI company investing in one of its customers. So, Company A is offering funds to Company B, and then Company B is using some of that investment to buy Company A's products. Some argue this falsely boosts revenue.

Finally, AI requires tremendous amounts of resources, such as water and energy, to operate at scale. The question is whether limitations in these resources will also limit the AI revenue opportunity down the road.

Meanwhile, many AI stocks have climbed to record levels amid extraordinary optimism about the future, prompting investors to worry that any disappointment could trigger a crash.

The stock I would still buy...

The bull and bear cases each make valid points. The decision to invest in AI stocks today depends on your investment strategy and risk tolerance. But, whether the bull or bear scenario plays out, one stock is likely to emerge as a winner over the long run. It's the stock I would still buy right now, and it's Amazon.

The company has well-established e-commerce and cloud computing units that have generated revenue growth over the years. And today, though the cloud business, Amazon Web Services (AWS), is seeing tremendous growth due to AI, its core non-AI business is also experiencing major growth. So Amazon's fortunes aren't completely tied to the future of AI. All of this makes Amazon a fantastic buy for both cautious and aggressive investors right now, as its prospects are strong even if Michael Burry's predictions prove to be right.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.