Does Mr. Big Short really get value investing… or AI?

Shuli Ren, Bloomberg

Michael Burry, star of The Big Short, is too famous for his own good.

News that his Scion Asset Management has decided to return outside capital is sparking conversations about his motives and whether the AI-driven stock rally has gone too far. In recent days, the self-acclaimed value investor has been bearish on the artificial intelligence investment boom, saying that the hyperscalers are inflating their earnings.

True to his words, in the third quarter Scion purchased put options — which bet on price declines — on chip designer Nvidia Corp. and data analytics firm Palantir Technologies Inc., according to Securities and Exchange Commission filings. That disclosure turned out to be our last glimpse of his portfolio.

The fund manager, known for his wildly successful bets against the US housing market in 2008 and immortalized in Michael Lewis’ best-selling book and a blockbuster movie, has established a cult-like following. But before hailing him as a prophet who can see the market top, it’s worth looking at his more recent track record to ascertain the merit of his words. What are his other great calls since the Global Financial Crisis?

Burry’s most prominent bet has been on China’s Big Tech, moving in and out of New York-listed Alibaba Group Holding Ltd., JD.com Inc. and Baidu Inc. as early as 2019. He purchased the e-commerce companies’ shares at the end of 2022 when China emerged from the pandemic, and liquidated within two quarters when a much-anticipated V-shaped consumption rebound did not pan out, only to get back in months later.

It was a sensible contrarian bet for a value investor. By 2023, foreigners had largely fled Chinese assets after the government’s harsh regulatory crackdowns, making Burry a rare loner in a community known for herd behavior. His investments were also dirt cheap, with Alibaba trading at as low as 10 times earnings.

What’s less sensible, however, is that Burry didn’t stick to his call. In the first quarter this year, when others were mulling over the DeepSeek breakthrough and China’s AI potential, he closed out all his positions in Alibaba. As a result, Scion failed to capitalize on the stock rally and the re-rating that ensued. The shares have gained over 80% this year as the company’s cheap and good AI model dazzled.

Burry’s fuddled China trade, therefore, raises doubts over his ability to spot mispricing. He’s shown a lack of conviction on his most high-profile bet, treating tech firms as a macro play and exiting at the wrong time even as the AI theme was still in its first inning. Frothy valuations were not an issue — and anyone who could see DeepSeek’s transformative change on the China narrative would not have sold.

As opinions start to divide over the AI boom, people naturally seek out legendary investors they are most familiar with for guidance. No doubt, Burry’s prescient insight into the subprime mortgage market earned him wealth and fame. But that spectacular trade alone doesn’t make him an oracle that can divine the future. Heed his words, but do your own homework.

Courtesy Bloomberg/Shuli Ren