Investor Michael Burry, made famous by The Big Short, is warning that the Nasdaq 100 Index is headed toward a dramatic reversal after experiencing a 'parabolic' surge that has driven technology valuations to unsustainable heights. According to reports from The Economic Times, Moneycontrol, and Bloomberg, Burry said the market resembles the peak of the dot-com bubble just before it burst, citing in particular the steep jump in chip stocks that has pushed up the Philadelphia Stock Exchange Semiconductor Index by nearly 70% since the end of March. The rally has been fueled by artificial intelligence-related spending from major technology companies such as Alphabet and Amazon, with the surge continuing even as geopolitical tensions threaten to slow economic growth and raise inflation through higher oil prices.
Burry noted that the Nasdaq 100 is trading at 43 times earnings — well above the implied level of around 30 times — because 'Wall Street may be overstating by more than 50% the earnings at our fastest growing, most highly valued companies'. As reported by The Economic Times, Moneycontrol, and Bloomberg, he warned that 'We are witnessing history. In the stock market, that is not a good thing' and likened the current situation to 'the scene of the bloody car crash, minutes before it happens'. 'History tells us that even if the party goes on for another week, month, three months or year, the resolution will be to much lower prices,' Burry stated. 'We are getting into that rare air, so extreme that the consequences will be unavoidable, no matter where one hides,' he added. The iShares Semiconductor ETF (SOXX) has rocketed close to 66% year to date, with some big semi names already doubling in the year, making the sector particularly vulnerable to profit-taking.
According to Sundial Capital Research analysts led by Jason Goepfert, this will be only the fourth time the S&P 500 has hit a record high while only 5% of its members were at 52-week lows, underscoring the scope of the rally. Data compiled by Bespoke Investment Group show that the Philadelphia semiconductor index has pushed this far above its 200-day moving average only two other times, in July 1995 and in March 2000, at the peak of Internet bubble. As reported by The Economic Times, Moneycontrol, and Bloomberg, Burry advised against shorting stocks given the expense of put options and the risk of being burned by ill-timed trades.
Burry stated he is holding a 'significant leveraged short position against a portfolio of companies' that he finds 'depressed and cheap' and plans to 'lighten up on companies' that don't meet his 'strictest valuation requirements'. According to The Economic Times, Moneycontrol, and Bloomberg, he advised taking profits from the recent rally and reducing exposure to stocks in general, particularly those from the tech sector. 'Even if it seems there is more time to run up, anyone lucky enough to be riding these parabolic moves, by not selling, is betting on one's own ability to jump off at or near the top,' he wrote. Despite his bearish outlook, he did not specify the companies in his short position, maintaining discretion about his current holdings. Palantir (NASDAQ:PLTR) is another name at risk, with Burry also betting against the stock through bearish put options, as noted by recent market analysis.
