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Famed investor Michael Burry has been bearish on the S&P 500 for ages now. But the blue-chip index continues going up, proving him unsuitable (not less than thus far).
Regardless of this, the investor is doubling down on his AI-is-in-a-massive-bubble thesis. And he reckons this hyper-growth inventory is weak to an enormous share value crash.
Cassandra unchained
As a reminder, Burry was portrayed by British actor Christian Bale in The Huge Brief movie. There are various sensible scenes on this film, however my private favorite is when Steve Carell’s character is advised by a dancing stripper that she owns 5 homes and a apartment — all financed with adjustable-rate mortgages.
That’s when the penny drops that there’s a subprime mortgage bubble. Anyway, lengthy story quick (no pun supposed), Burry and the others had been proper and made a fortune.
At the moment, he sees one other bubble with AI and has launched a paid Substack referred to as ‘Cassandra Unchained’ to put up his analysis on this topic.
No room for hiccups
This week, Burry shared a chart figuring out a specific buying and selling sample within the share value of Palantir (NASDAQ:PLTR). He believes it has breached an important help degree and will fall to $80, after which probably as little as $50.
With the share value at present at $135, this means Palantir may crash by 50% or extra!
Lending credence to this view is the software program inventory’s sky-high valuation. Proper now, its price-to-sales (P/S) ratio is round 45, whereas the ahead price-to-earnings (P/E) a number of is above 100.
Palantir has been pushed to those ranges by distinctive firm progress, which has fuelled a near-700% share value rally because the begin of 2024. Nonetheless, at its present valuation, there’s completely no room for any earnings hiccups (a key threat).
Getting extra
Now, it ought to be remembered that Burry is speaking a few inventory buying and selling sample. Against this, The Motley Idiot is targeted on long-term investing (5 years or extra). Over this time interval, such patterns typically quantity to nothing greater than distant zigs and zags on a chart.
Palantir closed the fourth quarter with $4.26bn of whole contract worth, a key software program bookings metric, which represented year-on-year progress of 138%. And administration expects 61% top-line progress in 2026.
Palantir’s ‘Rule of 40’ rating – that’s the corporate’s income progress price plus working margin – clocked in at an unimaginable 127%. In software program circles, hitting 40 is seen as wholesome for a rising enterprise (therefore the rule).
Maybe it ought to be doubled and renamed the ‘Rule of 80’ now Palantir has made a mockery of it!
If the inventory had been to crash anyplace close to $70, I’ll add it to my Shares and Shares ISA. At this degree, the forward-looking P/E a number of can be round 40, primarily based on forecasts for 2027.
For a corporation as worthwhile as this, I believe that will show good worth. As a result of even when Burry is correct and an AI bubble pops, it’s unlikely that firms and organisations will immediately cease utilizing Palantir’s Foundry and AIP (Synthetic Intelligence Platform). These are serving to clients make higher selections and develop into extra environment friendly and worthwhile.
With the inventory down 35% since November, I’m undoubtedly getting extra . However I’m not prepared to purchase it simply but.
