Two Legendary Investors Take Opposite Bets on AI: What the Market Might Reveal

Key Takeaways

• Michael Burry, famous for his 2008 financial crisis prediction, recently shorted both Nvidia and Palantir
• Warren Buffett and Berkshire Hathaway moved in the opposite direction, establishing a new position in Alphabet
• The divergence raises a critical question about who truly understands AI’s long-term staying power
• Recent price movements favor Burry’s thesis, but historical patterns suggest Buffett’s approach may prove more durable

The Investment Landscape: Two Contrasting Views

In the realm of institutional investing, few disagreements capture market attention like when two heavyweight strategists position themselves on opposite sides of a major theme. That’s precisely what unfolded during the third quarter when Michael Burry filed bearish positions and Warren Buffett suddenly broke his years-long cash accumulation streak.

Burry’s track record speaks for itself. The hedge fund manager who anticipated the housing collapse before most became a household name after his accurate bet against the mortgage market. Yet Buffett’s investing legacy spans six decades, having built Berkshire Hathaway into one of the most formidable wealth-creation machines ever created.

The question now circulating among market participants: Does Burry’s skepticism about AI reflect genuine concerns about unsustainable valuations, or is Buffett’s calculated entry into Alphabet a signal that artificial intelligence represents a genuine structural shift in corporate value creation?

Burry’s Thesis: Accounting Realities and Valuation Extremes

Through his fund Scion Asset Management, Burry structured bearish bets by purchasing put options on both Nvidia and Palantir last quarter. His underlying logic centers on two distinct but related concerns.

First, the valuation metrics for certain AI-exposed companies have reached extraordinary levels. Palantir’s price-to-sales ratio sitting at 110 mirrors patterns reminiscent of the dot-com era, when sky-high multiples eventually corrected sharply. History provides ample evidence that premium valuations, however justified by narrative, rarely sustain themselves indefinitely.

The second component of Burry’s argument proves more controversial. He contends that major cloud operators—including Amazon, Microsoft, Alphabet, and Meta Platforms, all major Nvidia customers—employ accounting methodologies that conflict with the actual lifespan of AI infrastructure. If GPU product cycles last 18-24 months but companies depreciate them over longer periods, the accounting treatment obscures the true capital intensity of AI infrastructure buildouts. Burry frames this as a systematic accounting concern within the AI ecosystem.

Since his positions became public via the November 3 filing, Palantir shares declined 19% and Nvidia retreated 13% through early December—initial vindication of his bearish stance.

Buffett’s Calculation: Three Years of Observation, One Decisive Move

The backstory here matters considerably. For three full years, Buffett maintained a contrarian posture while the broader investment community rushed into AI equities with fervor. Berkshire accumulated an unprecedented cash position exceeding typical levels, deployed funds into government securities, and became a net seller of equities—trimming long-standing stakes including Apple and Bank of America.

Then came Q3: the surprise announcement that Berkshire initiated a fresh position in Alphabet.

The timing and selection reveal a methodical thought process rather than reactive trend-chasing. Among the so-called “Magnificent Seven” tech giants, Alphabet commands a more modest valuation relative to peers, paired with a globally recognized brand, demonstrated pricing power, and a truly diversified business ecosystem spanning search, video platforms, and enterprise infrastructure.

Yet a deeper motivation likely influenced Buffett’s decision. As someone fundamentally opposed to crowd psychology—Buffett’s reputation rests on doing the opposite of prevailing sentiment—his three-year observation period likely involved rigorous analysis of which AI-adjacent companies have actually translated investments into tangible products, revenue acceleration, and earnings generation. Alphabet meets all these criteria. The company’s AI integration into Google search and YouTube has visibly enhanced user experiences while simultaneously providing meaningful competition to Microsoft Azure and Amazon Web Services in cloud infrastructure.

This wasn’t impulsive. This was calculated patience followed by deliberate action.

The Central Tension: Short-Term Wins vs. Long-Term Durability

Here emerges a crucial distinction between the two investors’ approaches. Burry’s bearish positions have already generated paper gains in mere weeks—a meaningful victory for short-term traders and tactical positioning.

However, profit generation doesn’t automatically validate investment thesis. A position can be profitable in a specific timeframe while remaining incorrect about fundamental direction. Day traders and hedge fund managers employing options strategies often capitalize on volatility and sentiment shifts without necessarily being “right” about five or ten-year trajectories.

Buffett’s playbook emphasizes a fundamentally different orientation: position sizing for decades, not quarters. His decision to purchase Alphabet in late 2024, three years into the AI narrative explosion, suggests he views artificial intelligence not as a transient bubble but as a durable structural force reshaping how computing resources generate economic value.

The underlying message: AI isn’t disappearing through the next market cycle. Companies positioned to benefit—especially diversified platforms like Alphabet with both the scale to invest heavily and the moat to monetize those investments—should remain resilient across varying economic conditions.

The Verdict: Execution Matters More Than Being Clever

Burry’s bearish thesis might prove prescient in capturing near-term valuations compression and sentiment rotation. His accounting concerns about AI infrastructure deserve serious consideration, and certain valuations do merit skepticism.

Yet Buffett’s decision to initiate Alphabet exposure after a three-year waiting period carries a different resonance. The move suggests confidence that AI represents a permanent evolution in corporate value generation—not a cyclical boom destined for correction.

When examining decades of market history, investors who positioned for long-term secular trends consistently outperformed those who made money through short-term tactical trades, regardless of initial profitability. The difference between being temporarily right and being durably right defines generational wealth creation.

The coming years will provide clarity on whether AI proves as transformative as Buffett appears to believe or whether Burry’s skepticism about accounting practices and excessive valuations identifies a significant market vulnerability. Until then, the divergence between these two legendary investors serves as a reminder that market-beating returns depend less on being clever and more on being patient and precise about identifying what actually drives long-term corporate value.