Sorry, Dr. Burry. I’d Rather Own Nvidia at a Premium Than Adobe at a Discount

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Michael Burry may have made one of the greatest trades of all time when he bet against the housing market in the wake of the Great Financial Crisis. Still, Dr. Burry isn’t someone to follow into or out of stocks, even if he has been more willing to share his moves and reasons for making them with the general public. Undoubtedly, Dr. Burry’s glorious bets don’t just stop at betting against housing before it melted down back in 2008.

He’s got a pretty solid track record of bets in the many years since. But, more recently, the man has been maybe a tad too aggressive with his bearish bets against parts of the AI trade. And it’s unclear just how early the man is this time around.

Semiconductors are probably more than just overvalued at this point, but it’s continued to prove difficult to bet against them, even in the face of increased volatility. As we found out in the past month, volatility works both ways. One horrific day may or may not be the start of a trend.

It takes guts to bet against semis, including Nvidia

As dip-buyers swooped in, bidding semi stocks to new heights, questions linger as to when AI bubbles will start to burst. Regarding specifics, Dr. Burry seems to be playing the medium-term game, with his bearish put options against the iShares Semiconductor ETF (NASDAQ:SOXX) going into January of next year.

By going long, at least when it comes to options, Dr. Burry could still prove right in a massive way. And I do think he will be in the money, given the odds of a steep correction in the semis from here.

Of course, we’d have to be looking at a collapse in excess of 50%. And while there’s a possibility that Dr. Burry could run for cover before the options themselves go bust, I do think that the risks of betting against the semis might be underestimated. 

With Dr. Burry also betting big on a number of beaten-down SaaS names in a class value investors’ move, more recently picking up more shares of Adobe (NASDAQ:ADBE) at a multiple that’s starting to get ridiculous (shares go for 8.0 times forward price-to-earnings), it feels tempting to get in the contrarian camp. Whether that’s betting against semis or going bargain hunting in the SaaS scene, Dr. Burry’s bold style will not be for everyone.

Nvidia: A premium AI winner at a not-all-too-premium price

Personally, I think a name like Nvidia (NASDAQ:NVDA), which Dr. Burry is still betting against, might be better to buy on strength than Adobe on weakness. Of course, there’s fear that excessive AI-driven GPU demand could lead to a “bullwhip effect,” which would undoubtedly drag Nvidia down and make its shares look relatively expensive at today’s seemingly reasonable 32.2 times trailing price-to-earnings (P/E) multiple.

In any case, it’s easier to go with the flow than against the grain, especially as Vera Rubin looks to fly off shelves, all while the PC market looks to take interest in Nvidia’s RTX Spark. Until AI cools, I just don’t see Vera Rubin not selling out or sitting on shelves, running the risk of markdowns.

Until then, I think Nvidia is a far steadier, and perhaps more rewarding bet as it remains a prominent “picks and shovels” winner while empowering AI to cause some to question the business model of SaaS. As far as SaaS goes, Adobe has to be one of my favorites, but still, it could be a long, difficult road ahead for the stock as it continues to sink because it’s perceived to be on the wrong side of a massive technological trend.

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