Key Points
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Michael Burry is famous for his successful bet against the U.S. housing market in the leadup to the 2008 global financial crisis.
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Last week, he revealed a short position in the iShares Semiconductor ETF, which exclusively invests in America’s best chip companies.
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Burry thinks the artificial intelligence infrastructure spending boom is unsustainable, which could send the iShares ETF crashing.
- 10 stocks we like better than iShares Trust – iShares Semiconductor ETF ›
Michael Burry is famous for making a massive bet against the U.S. housing market in 2005, a few years before it collapsed and triggered the global financial crisis in 2008. He has since closed his hedge fund, Scion Asset Management, and now invests his own money whenever he identifies worthy opportunities.
Burry was very active in the stock market last week, opening a series of short positions against companies that operate in the artificial intelligence (AI) infrastructure space. Over the past few months, he used his social media and his Substack pages to voice skepticism about the sustainability of the AI spending boom, and he’s now putting his money where his mouth is. By going short, he will profit if the underlying stocks or securities he’s betting against decline in value.
As of June 30, Burry was short the iShares Semiconductor ETF (NASDAQ: SOXX), an exchange-traded fund (ETF) that exclusively invests in companies selling the chips and components powering the AI boom. This position suggests he believes the entire semiconductor industry is overvalued, but is he right?
This ETF holds America’s fastest-growing semiconductor stocks
The iShares Semiconductor ETF focuses on companies that design, manufacture, and distribute chips and components, but particularly those benefiting from the AI revolution. It has a highly concentrated portfolio of just 30 stocks, but it has 36.5% of its assets parked in its top five positions alone:
Therefore, Burry is effectively betting against some of the world’s best semiconductor companies that are currently generating blistering growth. Micron Technology, which supplies high-bandwidth memory (HBM) for data centers, grew its revenue by a staggering 345% year over year during its most recent quarter and is forecasting a similar increase in the current quarter.
AMD and Nvidia supply graphics processing units (GPUs) for data centers, which are the main chips used in AI training and inference workloads. Nvidia has grown its revenue sevenfold over the past three years, thanks primarily to GPU sales, and it’s now the world’s largest company with a market capitalization of $4.7 trillion.
Broadcom supplies some of the semiconductor industry’s best data center networking equipment, but it’s also taking the fight to AMD and Nvidia by selling AI accelerators, a type of AI chip that can be tailored to suit the needs of specific customers. Alphabet and Anthropic are two companies that have placed tens of billions of dollars’ worth of orders for these chips.
Outside its top five positions, the iShares ETF also holds semiconductor powerhouses Applied Materials, Marvell Technology, and Taiwan Semiconductor Manufacturing.
The iShares ETF has a remarkable track record, but Burry might be right
The iShares Semiconductor ETF has delivered a compound annual return of 14.9% since its inception in 2001, so it has comfortably beaten the S&P 500 index, which returned 9% per year over the same period. That gap has widened significantly over the past three years, with the iShares ETF soaring at an annual rate of more than 54% thanks to the AI boom.
It seems audacious for Burry to bet against such incredible momentum, but he makes some very good arguments. First, he thinks the iShares ETF is expensive, which is fair, considering that its price-to-earnings (P/E) ratio of 74.3 is more than twice the P/E of the Nasdaq-100 technology index. In other words, semiconductor stocks have run far ahead of their big-tech peers in terms of valuation.
Second, Burry questions the sustainability of the AI infrastructure spending boom, because the companies allocating the most money to chips and components aren’t performing as well as the semiconductor companies they’re funding. In other words, while chipmakers are enjoying huge gains in value because of their soaring revenue and high profit margins, their customers aren’t reaping the same rewards from selling AI as an end product. This situation could lead to a sharp decrease in hardware spending in the near future.
In fact, a recent survey by UBS Group suggests that around 60% of businesses are curbing their AI spending, which isn’t good news for AI companies such as OpenAI and Anthropic, nor is it good for cloud providers. The effects could flow through to the semiconductor industry and potentially result in a significant correction in the iShares ETF especially from its elevated valuation.
It’s impossible to know whether Burry’s short position in this ETF will pay off, but the evidence suggests he might be on the right side of this trade. Only time will tell.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Applied Materials, Broadcom, Intel, Marvell Technology, Micron Technology, Nvidia, Taiwan Semiconductor Manufacturing, and iShares Trust-iShares Semiconductor ETF. The Motley Fool has a disclosure policy.
