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Famous investor Michael Burry has been working hard S&P 500 years now. Yet the blue-chip index continues to rise, proving it wrong (at least so far).
Without this, the investor is doubling down on his AI-is-in-a-massive-bubble thesis. And you think this high-growth stock is at risk of a major stock market crash.
Cassandra is released
As a reminder, Burry was portrayed by British actor Christian Bale in The Big Short the movie. There are a lot of great scenes in this movie, but my favorite is when Steve Carell’s character is told by a dancing renegade that he owns five houses and a condo – all financed by an adjustable rate mortgage.
It is when the penny drops that there is a subprime mortgage bubble. Anyway, long story short (no pun intended), Burry and others were right and made a fortune.
Today, he sees another bubble with AI and has launched a paid Substack called ‘Cassandra Unchained’ to post his research on the subject.
There is no room for fainting
This week, Burry shared a chart that identifies a particular trading pattern in the stock price Palantir (NASDAQ:PLTR). He believes that it has broken a key support level and could go down to $80, and possibly down to $50.
With the share price currently at $135, this suggests Palantir could crash 50% or more!
Giving proof to this idea is the high rating of stock software. Currently, its price-to-sales (P/S) ratio is around 45, while its price-to-earnings (P/E) multiple is over 100.
Palantir has been driven to these levels by exceptional company growth, which has fueled a nearly 700% share price rally since the start of 2024. However, at its current rate, there is absolutely no room for any withdrawal of benefits (high risk).
To be more interested
Now, it should be remembered that Burry is talking about a stock trading pattern. In contrast, The Motley Fool focuses on long-term investments (five years or more). At this time, such patterns are usually nothing more than distant zigs and zags on the chart.
Palantir closed the fourth quarter with $4.26bn in contract value, a key software booking metric, which represented year-over-year growth 138%. And management expects top-line growth of 61% by 2026.
Palantir’s ‘Rule of 40’ score – that’s a company’s revenue and operating margin growth rate – reached an astonishing 127%. In software circles, hitting 40 is considered the lifeblood of a growing business (hence the rule).
Maybe it should be doubled and renamed ‘Rule 80’ now that Palantir has made fun of it!
If the stock were to crash anywhere near $70, I would add it to my Stocks and Stocks ISA. At this rate, the forward P/E multiple will be around 40, based on 2027 forecasts.
For a company as profitable as this one, I think that would be a huge asset. Because even if Burry is right and the AI bubble pops, it is unlikely that companies and organizations will suddenly stop using Palantir’s Foundry and AIP (Artificial Intelligence Platform). This helps customers make better decisions and be more efficient and profitable.
With the stock down 35% since November, I’m definitely getting more interested. But I’m not ready to buy it yet.
