In an industry of seedy soothsayers, cocksure charlatans and resourceful rogues, honest and accurate appraisals are exquisitely rare. When it comes to economics, investments and finance, this is particularly so. Certitude, however, tends to be in abundance for those predicting the next financial crash, the sort that will singe earnings and strafe savings. Take, for instance, hedge fund investor Michael Burry, a man of sufficient notoriety to warrant a celluloid depiction of himself by Christian Bale in the 2015 film The Big Short.
On that occasion, Burry’s hunch, albeit an educated one, was that the US housing bubble would implode in what became the Great Recession of 2007-9. The buccaneering investor shorted mortgage-backed securities ahead of the collapse, raking in profits as the subprime mortgage sundered. But his record is by no means immaculate, seeing falls when they have not eventuated, especially on tech stocks. For him, the language of catastrophe is never far away. An April 7 post on X this year is fabulously bleak: “Millennials going through 9/11, two economic recessions, a pandemic, the looming threat of WW3, AI job automation, and now facing the ‘biggest crash in history’.”
Towards the end of October, he felt in an oracular mood: “Sometimes we see bubbles,” he wrote in another post. “Sometimes, there is something to do about it. Sometimes, the only winning move is not to play.” His Scion Asset Management hedge fund subsequently moved 80% of its US$1.1 billion portfolio to place options against Palantir (PTLR) and Nvidia (NVDA). These will pay handsomely should shares in these AI-linked companies fall. Burry remains convinced that technology stocks, certainly when it comes to artificial intelligence, are overvalued and set for the precipitous plummet. Whether this is due to growing scepticism about the herd-like rush to adopt AI, the debate about necessary regulation, or that broader sensibility that what rises or swells so rapidly must fall or puncture, is impossible to know. Certainly, the incestuous circular financing tech companies have been engaging in is crying out for a stinging correction. But it is precisely moves of this nature by Scion Asset Management that send jitters through the market, turning preaching prophets into market saboteurs.
Surely enough, Palantir’s shares fell by 8% on November 4 despite exceeding Wall Street estimates of returns for the third quarter. The stocks had risen to skyscraper levels – 173% for the year heading into trading that day. Nvidia’s fell by 4% after having improved by 50% this year. “It seems fatigue over AI and the current earnings run has investors questioning the sustainability of the AI hype,” reasoned financial analyst Farhan Badami. “That’s dragged down AI companies overnight in markets.”
Sympathy for such companies is bound to be in short supply. Palantir is the sort of data analytics company any half-decent minded individual would wish to fail.
Excerpted: ‘Targeting Palantir and Nvidia: Profits, Prophets and Overvalued AI Stocks’. Courtesy: Counterpunch.org
