Michael Burry of "The Big Short" Fame Just Made a Shocking Move. Should You Follow?

Key Points

• Michael Burry expressed concerns late last year about the formation of an AI bubble.

• The investing giant is known for betting against the U.S. housing market in the early 2000s — before it crashed.

• 10 stocks we like better than Microsoft ›

Investors eagerly examine Michael Burry’s moves because he’s proven his keen understanding of financial markets over time — and the ability to translate that into an investing win. Burry bet against the U.S. housing market when it was booming back in the early 2000s — and generated a more than $700 million gain for investors in his hedge fund as the subprime market crashed.

Burry’s success was documented by Hollywood in the movie “The Big Short,” bringing his name into households around the world. This successful investor generally stays out of the limelight, but he continues to invest and discusses the market and his investing moves on Substack. Several days ago, Burry, who has in the past expressed concern about the valuations of AI stocks and has been bearish on the industry, made a shocking move: He revealed a long position in one of today’s big tech players — one that is leading in AI. Should you follow him into this stock? Let’s find out.

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Image source: Getty Images.

Burry’s views on AI

First, let’s consider Burry’s views in recent months regarding AI. Late last year, the investor launched a Substack newsletter to share his thoughts about the AI market, one that he considered to be in bubble territory. Prior to deregistering his hedge fund last year, Burry held bets against popular AI stocks Nvidia and Palantir Technologies. Burry compared the situation to past bubbles, such as the dot-com bubble, when spending soared to support a potential game-changing revenue opportunity ahead.

Considering this, some investors may be surprised to hear Burry’s latest move. The famous investor announced a long position in Microsoft (NASDAQ: MSFT). The company is an AI player, offering AI products and services through its cloud business. And on top of this, some investors have worried that AI developments from rivals may replace certain software, representing a risk for Microsoft. These two points normally suggest Microsoft wouldn’t be on Burry’s buy list.

And yet, Burry today is positive on Microsoft stock. Though the move may seem shocking at first, the following, according to press reports citing Burry’s Substack newsletter, puts it into perspective. Burry says he “forensically” examined Microsoft and, based on his findings, determined that the company has the competitive strengths to support long-term growth. So this doesn’t mean Burry is going all in on AI stocks; instead, he’s identifying opportunities — those players best positioned to win over time.

Key ingredients for long-term success

Now, let’s consider our question: Should you follow Burry into Microsoft? Microsoft has the key ingredients generally found in a long-term success story. The company is a market leader in software and cloud computing, and it has proven its ability to generate earnings growth over time.

Though Microsoft is spending heavily to build out compute, offered by its cloud unit, the company has the resources to do so — and is generating growth from AI demand along the way. For example, Azure and other cloud services last quarter saw revenue soar 39%. The company is set to report earnings for the recent quarter this week, and considering comments about AI demand made by Intel and Taiwan Semiconductor Manufacturing recently, there’s reason to be optimistic about revenue growth.

What about the risk of AI actually weighing on Microsoft? The idea is an AI model — for example, one from Anthropic — might eventually do the job of today’s software. This may happen in some cases, with AI replacing a simple piece of software, but I don’t see AI taking over the role of complete systems like Microsoft 365.

All of this suggests that Microsoft is well-positioned to win as the AI story progresses, and at the same time, the company doesn’t depend exclusively on this new technology for growth. Meanwhile, today Microsoft stock trades at 25x forward earnings estimates, down from more than 35x last year.

This is a fantastic price for a market giant that also may benefit from a new era of growth ahead — and this means investors might want to follow Michael Burry’s surprising move and get in on this top AI stock.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Microsoft, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.