Michael Burry says neither SpaceX nor Anthropic is worth $1T
businessinsider.com
businessinsider.com
Burry is well aware of this, he has written about how passive investing is contributing to this problem.
> Burry is well aware of this ...
Well, no he isn't well aware of this, apparently. He's been right in 2008 but he has been spectacularly wrong for the last 5 to 10 years, like shorting Tesla or Nvidia at the worst possible moments - and eventually closing his hedge fund...
He just didn't take to heart that the market can stay irrational for longer then he could stay solvent.
Both Tesla and Nvidia valuations are irrational from a market perspective. Doesn't mean they'll crash within the next months or even years, but it wouldn't be surprising if they did
Different levels though. NVDA P/E is 31 which is slightly high but not crazy. The AI datacenter investments might dry up and then earnings drop, but who knows. So it's defensible, at least.
TSLA is in another universe though, P/E of ~360!
I am convinced spacex will acquire TSLA just to avoid seeing it crash.
It has been broken since ~2008 (ZIRPs, etc.) and has really gone off the rails since BTC and memestocks have taken off. Now everything's a memestock. It's all vibes-based.
There are no fundamentals.
There is very low signal to the noise.
Isn’t this the exact same sentiment from the late 1920s when people were making “insane, life changing” money by buying equities on margin?
It may well though, because now we have an automatic buy from the government to 'fix' the market if it 'breaks'. The line goes up.
The cynical nihilists have capitulated to the stock market always going up, that has to be flashing a very bearish warning sign.
Humans are prisoners of the present moment, but just think what a market is. What does it really mean as it accumulates disorder for decade plus.
Can the market just continue to deviate from a markets actual purpose forever? Hell, can anything in this universe exist in a particular state forever.
If it can’t, then it means at some point things have to go in the other direction. Use your imagination what that means for the largest most complex (man made) system in the history of this planet.
I wouldn't advocate for betting against any of this. But I took my money out of the stock market a few months ago.
Shorting is too risky and depends a lot on timing. Staying clear of this mess is a safer bet.
To make a parallel, it's not like disinformation didn't exist in the past, but nowadays with social media, llms and image gen tools and a few armies of bots, you can spread whatever bullshit you want at lightning speed.
- ZIRP and similar policies essentially forced everybody to get into the stock market if they wanted to tread water.
- Then people saw with BTC (and similar, e.g. ETH,) that these so-called "market investments" don't need to be rooted in any kind of fundamental. They can be weightless tokens. This, in short order, lead to silly things like memestocks and NFTs -- but they also twisted the hell out of the markets. The valuation of TSLA has long been an example of this.
Then there's inflation, which has inflated stock market prices as much as it has inflated anything else. And there are toothless regulators who would deserve our sympathy if they weren't so lackadaisical. There are also llms, social media, etc. -- but those feed on the above.
The market can remain irrational longer than you can remain solvent.
A long-term principle that I think does still apply.
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine”
- benjamin graham
- creative accounting (Enron, Worldcom)
- zero-interest rate policy
- SPAC IPOs
- exotic securitization (credit default swaps)
...that made valuation more opaque over time. The age of value investing is long gone.
Nah, it might appear so, but the moment of reckoning always arrives, always. Like eventually, it arrives.
Its a different argument, that most people themselves are not long-term investors, in that case of course, such a thing doesn't even apply to you.
I think Fidelity did some research that the most profitable accounts belonged to dead people. The proven formula is to pick the best stocks out there, pyramid upwards and be patient.
As long as companies can make it into the index, passive investors will funnel money into buying stock of these companies, no matter how badly these companies are run.
The trillions that mechanically and automatically flowed into index funds in pensions and 401k accounts must mechanically and automatically flow right back out after retirement, right?
Especially when younger generations are too poor to save for retirement and most companies don't offer pensions to younger workers any more, where will the inflows come from to offset the outflows?
Also, a significant part of the stock market is driven by foreign investment. The US has few capital controls and is an easy market for foreigners to invest in. Around 1/3rd of US stocks are owned by foreigners.
Even if the older generation sells during retirement, foreign investment will be more than enough to replace it.
That in turn means that a lot of the invested money goes towards ultra-safe stuff like government bonds, which is about the only thing keeping the US government afloat (if there is always a healthy amount of buyers, you can go into debt no matter if it is sustainable), and what remains of the hundreds of billions of dollars that flow into these funds each month (and [1] is just pension funds, not 401k and other forms of privately-held retirement assets) and is not earmarked for such safe asset classes spills onto the ordinary stock market, i.e. S&P 500, NASDAQ et al.
And here comes the trap with low-fee investment funds... when the ETF or pension fund's policy is "we'll track NASDAQ 100" and SpaceX enters NASDAQ 100, they have no choice than to shift billions of dollars worth of assets into SpaceX at whatever is the market price at that point. No matter if the fund managers think that the valuation is excessive, if SpaceX has a long term viable business strategy, nothing can prevent this.
To make it worse: once in NASDAQ 100, you as a company have no incentive to behave. You cannot be punished by free-market means (aka going under), simply because your inclusion in the NASDAQ 100 means that any significant loss in value would wipe out way too much value in pension funds.
The US' idea to completely tie pensions to the stock market will fry the US economy alive. We've already seen this during and past Covid... first, lockdowns got relaxed because it fried the stock markets too heavily, thus giving us four massive waves until vaccine distribution caught up, and then remote work that was allowed in many countries by law got slowly axed because REITs (real estate investment trusts) got screwed by companies quitting expensive rental contracts for office space. But that pales in comparison to what we'll see when the AI bubble pops.
[1] Q1 20: 23T, Q1 21: 26T => about 3T/y, 250B/mo, per https://fred.stlouisfed.org/series/BOGZ1FL594090005Q
by "anymore" I assume you mean for a few decades now
I'm no expert but I think eventually we'll have even more specialized ASIC like machines with models burned into them and a that will absorb a chunk of the market, similar to what happened to crypto mining but to a lesser degree since the work isn't as static.
Either way, you'll still be starving for data.
The best work in this area is memory-integrated Big-Ass-Die or Big-Ass-Chiplet solutions like Cerebras which park SRAM right next to your cores, not ASICs.
This has already happened and is very interesting.
Seems equivalent to removing road safety rules for the least-tested, most-powerful new vehicles only.
They should just have their own criteria for inclusion in the fund.
Quote from Cameron Lilja, Nasdaq's global head of index solutions:
"It is not necessarily representative to have a company that's big and could have a sizable representation in the index to keep them out for that long," Lilja said in an interview. "We're seeing share and corporate structures change - and companies that are staying private considerably longer are thus growing to be truly mega-cap companies before they even come to the public markets."
There's been fewer IPOs recently so Nasdaq and competitors are all racing to woo the few big ones to list with them.
https://resourcehub.bakermckenzie.com/en/resources/cross-bor...
https://www.investopedia.com/articles/investing/050515/how-n...
This actually makes sense to me. The NASDAQ 100 is—brand wise—geared towards the largest technology companies. It isn’t trying to pick good investments. It’s trying to represent that market. All of these AI companies fit that bill.
I’m more sceptical about S&P suspending its float and profitability requirements. But despite financial influencers on YouTube banging this drum for views, S&P hasn’t actually decided that yet.
1. Do an IPO.
2. Sell a small amount (5%) to price insensitive Elon Musk-fans at a $2 trillion valuation
3. Get in all the indexes, because you are huge.
4. Unlock more stock, which the index funds have to purchase
[1] https://www.bloomberg.com/opinion/newsletters/2026-06-01/the...
My impressions is that US investors also have a special love for the S&P500 and could likely benefit from a non-US bias.
Buy alternative ETFs with similar performance and low fees. VIG is one example.
Almost every stock in VIG is in the S&P.
Their impact would be felt across the whole market by their sheer valuation - even if you tried to exclude them specifically.
So yeah, if eg ai crashed and took Nvidia, meta, goog or MS for the ride... You'd have massive impacts all across the board, even if you specifically tried to exclude them from your index, just because of how gigantic it's share on the economy is.
But this is purely theoretical. It can only be considered an opinion until something actually happens - because the market has never been in a situation like this before - no matter what some people may claim.
If you have a $10B fund which owns things evenly across the nasdaq, and a new company arrives, you have to buy shares in the new company, which means selling existing shares or getting more funding to balance.
So you buy $1B of SpaceX stock at the IPO price, meaning you have to sell 10% or $1B of existing Nasdaq stock, which (when combined with every other fund) lowers the cost of the other stocks.
If I own stock in everything-but-spacex, then I'm seeing the price collapse because everyone else is selling.
Then if spacex stock collapses to half its initial price, your $1B becomes worth $500m, you get margin called, and you have to sell more stock, pushing the other stocks down, and the problem cascades
Of course the recession that would likely occur if/when the AI spending merry go round comes to an ends would have a negative impact on the entire economy. In that scenario, would you rather own a stock that's going to zero, or one has taken a hit because of the other company going to zero but still has a viable long term business?
Would you rather have an unusually large concentration in a few very specific companies in your portfolio, or have increased diversity (and therefore lower risk) in this unprecedented scenario?
We all know the market can stay irrational much longer than you can stay solvent if you bet against it. If you watched "The Long Short" (excellent movie btw.) you know how close Michael Burry came to capitulation before his subprime bet paid off. He seems to have a tendency to be too early with his predictions, even with his genius GameStop investment. So while he may be right again fundamentally, his timing may be completely off and those companies could be "worth" significantly more than a trillion dollars, at least temporarily, in stock valuations.
My personal prediction is this: The hype will go on longer than people think, just like with the New Economy. There is this quote from market analyst Larry Wachtel in 1999 who said: "Everybody's happy, everybody's making money - something's wrong here"[1]. Ironically, even Wachtel eventually succumbed to FOMO, capitulated, went in late, and lost a lot of money[2]. I am trying to not make his mistake, but it will be tempting to do so, I am sure about that.
To believe the valuation, Anthropic earnings need to grow 100x. For a more likely outcome, I can recommend a bridge in Brooklyn.
https://michaeljburry.substack.com/
And the counterpoint is that META, GOOG, AMZN, MSFT are all betting their companies that AI is the next move. Just yesterday, GOOG lent another $80 billion to be invested in their AI hardware, and they're also investing their own stock in AI hardware, for a cumulative investment of already over $1 trillion. Clearly the tech sector thinks this is worth it.
And of course the people deciding in FANG companies actually have numbers, Michael Burry has the same numbers you have. So these investments are "worth it" according to people with inside information. What Burry is doing, in one perspective, is calling out the leadership of FANG companies. Now that's the job of a short-seller of course. But that's the bet being made.
Perhaps private equity has become so skilled that when they finally sell to the public they leave nothing on table.
“Leaving nothing on the table” would mean selling few enough shares at the IPO that you have to overpay to get shares at the IPO. Previous valuations are known, as is that implied by each choice of IPO price when looking at the book. So the skill is just in the company not needing all that much money and being great at generating hype.
Granted, their profitability is better but in 2021 they were (rationally) valued based on Great Expectations which didn't pan out.
Now they're (rationally) valued on Much Less Great Expectations.
So I think it has nothing to do with skills of early investors (not the boogeymen, irrelevant private equity) and everything to do with Coinbase being a fast growth company at the time of IPO and being negative growth company after IPO.
I need to figure out the next one.
The famous quote, "Markets can remain irrational longer than you can remain solvent," is widely attributed to the renowned British economist John Maynard Keynes 1883-1946
The date is hidden in the last 8 digits of pi. Should be a snap for a smart person like you.
[1] https://www.sec.gov/Archives/edgar/data/1326801/000132680124...
On January 31st 2023 Michael Burry just tweeted out "Sell"
that period was the market bottom, which has rocketed since then. (QQQ more than doubled)
Do you have access to the internet? Seemingly yes.
The booms just tend to be much bigger than the busts.
Same with a lot of physical infrastructure. The UK has a robust railroad network today, but it was built during a bubble that was so insane people would take loans from banks to invest in railroad stocks.
How does it matter to you? If you had invested in Internet broadly, you would have been WAY better off in the long term. Meaning: your strategy had been to keep investments tied to Internet first companies, you would have done better than pretty much any other person.
Things go up and down but broadly internet went up.
So evidence that internet was a bubble is wrong, it in fact shows that pensions did the right thing by putting money in the internet.
Now, if you had put your money in those stocks 12 months later, you would do okay (except for Sun). So, no, those pensions did not do the right thing by buying at the peak of a bubble. At least, not for people like me who don't like 15 years of negative returns.
[1] https://companiesmarketcap.com/sun-microsystems/stock-price-...
[2] https://companiesmarketcap.com/cisco/stock-price-history/
Why not NASDAQ?
The only reason AI is worth $1T is if you believe it will continue to get better and displace all those jobs, not just in claude replacing knowlege workers, but in the outcome of that work being so transformational that physical work is also replaced.
If it does, then the entire economy is completely turned over and it doesn't really matter as nobody will have a job, and thus the entire concept of the S&P and the western economy as a whole falls to bits.
But Micheals arguments are valid. There could be competition, or even local models, thus indeed becoming 'commoditized'.
Because I used frontier models this weekend (I had 78% of my assigned tokens for this month left, I wanted to burn them before June 1st, ended up with 24% left), and tbh, I don't see much of the improvement compared to the models I use day-to-day. I'd rather pay less for a slightly worse model. Stacktrace analysis (or any bug analysis really) is where LLMs have the most success rate imho, and free models are good enough since last year. As for coding/architecture tasks, frontier models seems to hallucinate less, but I wonder if it's the guardrails or the he model themselves.
EDIT: i still find absurd thinking that all those subscription would go to a single company, let me be clear. But that $50 price doesn't sound unreasonable at all.
Anthropic and OpenAI are losing lots of money with their subscriptions. They are giving away access to those powerful models for cheap. The Deepseek price is the API price, which is the only sustainable approach here
The problem with all these companies is that they are priced as if their training and inference costs are going to come way down, but somehow only for them specifically.
I believe that Anthropic is worth $1T. I believe it won't go below it (inflation adjusted) for the next 2+ years. How do I make money with this?
Short dot.com stocks (55% return), short subprime mortgages (Massive return), long Gamestop 2019, short ARKK 2021, The shorts on Palantir and NVDA are probably still running (PLTR 25% in profit, NVDA 20% loss).
So he really relies on zero fundamental analysis these days
https://en.wikipedia.org/wiki/GameStop_short_squeeze#:~:text...
Neither Anthropic, Open AI nor SpaceX in its current form is a good candidate for an IPO at valuations that all but guarantee hundreds of billions of dollars in "passive capital" aka pension funds and ETFs will have to buy in.
SpaceX might have been a candidate on its own core business (aka: launching spacecraft and Starlink), but ever since the weird side deals with all of the other companies in the Muskverse (Twitter, xAI, Tesla) it is far too contaminated.
Sooner or later the AI bubble will burst - and assuming that the pension funds and ETFs buy in as projected, they stand to lose a lot of money that will make Covid's first lockdown + dotcom + 2007 Lehman combined look pale.
They will be right eventually and inevitably. Until then, it's funny watching them build a personal "brand" just to say "I told you so" when the market drops in X years.
The same way semiconductor, internet or railroad companies were not great investments regardless of how important the technology was going to be. It's still a financial investment and it's only going to pay off if bought at the right price, not at crazy multiples.
I will also add: if all your moat is your latest model, you're as good as your latest model and can be easily dethroned.
Strong moats are monopoly-like concessions (Verisign), exclusive technological edge (ASML), brands (Coca Cola), etc.
Agreed with the exception of Verisign. Many a "security" company went bust like DigiNotar after mishaps or hacks. Being a globally trusted root CA or DNS operator is a strong moat - but also an incredibly brittle one.
And brands... brands aren't as safe as we thought either, as "store brands"/"private labels" are taking up more and more market share [1].
[1] https://www.nbcnews.com/business/consumer/shoppers-are-tradi...
https://www.wheresyoured.at/anthropics-profitability-swindle...
Might I interest you in some bridges sir?
There's no moat in LLMs when you're as good as your latest model.
Companies out there aren't in the business of throwing money down the drain.
Take DS4, you can use Deepseek APIs directly with Claude Code, and you're unlikely to notice a difference for the overwhelming majority of your use cases. But your bills run in few $ per day. I'm talking 2 magnitudes less.
According to your logic, it should have a market cap of $2.6 trillion.
Conservative is to look at P/E, which is 10 for Mercedes.
Anthropic isn't even a growth stock, since it has already been force fed to everyone with one of the largest marketing and coercion campaigns in history.
It also has no path to become profitable.
Paul Graham doesn't think so
Whoever you are Michael Burry, you don't know shit about the implications, and where this is headed, and that the party only just got started.
I sure do wish I had a big chunk of that overpriced Google IPO stock, and Amazon, and MS, and Apple, etc etc etc
Translation (took me while to understand this sentence):
So the company that actually solved the problem of making a computer program write other computer programs
Burry says that the company making "computers that can program other computers" isn't worth $1T.
However, if you can't even be bothered to find out who Michael Burry is, your opinion is nothing more than a driveby internet shooting. Adds nothing but noise.
please go back to school
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