Does “The Big Short”’s Michael Burry Know Something Wall Street Doesn’t? He’s Deepened His Bet Against Some of the Stock Market’s Biggest Winners.

Investor Michael Burry gained fame when he made a daring -- and eventually winning -- bet. Burry bet against the U.S. housing market in the early 2000s, and this operation generated $700 million for investors in his fund as the financial crisis unfolded in 2007 and 2008. Burry's insight and keen understanding of the market were highlighted in the movie "The Big Short" several years later.

Since that time, investors have listened closely to Burry's comments on what's next for the market. Burry deregistered his hedge fund last year, but he still invests and shares his thoughts on the market with followers through a newsletter.

And in recent times, Burry has been once again betting against a booming part of the market: artificial intelligence (AI) stocks. Over the past year, Burry has held such bearish positions, and just a few weeks ago, he reinforced this bet against AI players. Does this famous investor know something that Wall Street doesn't? Let's find out.

Michael Burry. Image source: Getty Images.

Wall Street is bullish on AI

AI stocks have driven the S&P 500 and other major indexes higher over the past few years. In fact, the S&P 500 is heading for an increase of nearly 100% from the start of 2023 through today. Investors have piled into AI stocks, seeing the technology's potential to transform the corporate earnings picture, and Wall Street has advised this bullishness on various players, from Nvidia to Micron Technology. For example, those two stocks have a majority of buy ratings right now, and Wall Street expects them to gain 56% and 78%, respectively, over the coming 12 months.

But Burry begs to differ. The AI bubble may burst sooner rather than later, Burry wrote a few weeks ago in his newsletter. "I am moving timelines up," he wrote, shifting to put options from short positions in major AI stocks, including Micron and Nebius Group, a neocloud provider that's seen revenue and its stock price soar amid the AI boom. Put options are a more cost-effective way to make this bearish bet.

Though Wall Street remains optimistic about AI, Burry isn't the only one to speak of an AI bubble. Other investing giants, such as Ken Griffin of Citadel, have recently spoken of at least the possibility of a bubble in formation right now. This is for a number of reasons. The S&P 500 has climbed to record valuation levels, spending on the AI infrastructure build-out has exploded higher, and the general economic situation isn't completely bright amid rising inflation and the possibility of more interest rate hikes on the horizon.

Investing more than $700 billion in AI infrastructure

I'll focus on the infrastructure build-out as the major concern, however. Tech giants aim to spend more than $700 billion this year, and investors have questioned whether these players will be able to fully monetize these efforts down the road. If the revenue opportunity falls short, these tech leaders could see earnings and their stock prices suffer. Burry, in his latest move, cited a report by Ares Management saying that the current AI momentum depends on the assumption that AI spending will remain strong.

So, does Michael Burry once again know something that Wall Street doesn't? It's possible that the spending boom will, at certain points, meet with headwinds or challenges. And some AI stocks may have climbed too far too fast. The market could see a pullback in the weeks or months to come.

But it's important to remember that the long-term AI story looks bright according to the evidence we have right now. AI has what it takes to help individuals and companies gain in efficiency and become more innovative. In the case of companies, all of this may help them lower costs and boost growth -- it's very likely they will want to go down this road. And we're in the early stages of this application of AI to real-world problems.

What does this mean for you as an investor? It's a great idea to listen to the words of Burry and other experts -- and to be ready for any potential market pullback. The stock market never climbs forever, and at a certain point, we could see some declines. But if you invest in solid technology players with a long track record of profitability and you hold on for the long term, you're likely to weather the storm and set yourself up for a win over time.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool has a disclosure policy.