Famous short-seller Michael Burry is convinced that the market has already passed its verdict on major tech companies' investments in artificial intelligence (AI). Investors are now favoring companies demonstrating high profitability, not companies with large capital investments.
According to a Bloomberg chart shared by Burry on social media, Wall Street has reduced investments in many of the tech companies investing the most capital in AI. At the same time, Google's parent company Alphabet Inc., Amazon.com Inc., Microsoft Corp., Meta Platforms Inc., and Oracle Corp. have underperformed the broader market since early June.
Alphabet was the worst performer among all companies in the group, despite having the highest projected capital expenditures for the next 12 months.
Another chart reflected a revision of valuation estimates for many major tech companies: forward price-to-earnings ratios for Nvidia Corp., Microsoft, Amazon, Alphabet, and Meta have fallen from recent peaks as investors reassessed the prospects of AI investments.
The market has voted, and the results are clear, — Burry commented on the situation.
The shift in sentiment has also put pressure on the "Magnificent Seven" stock market — the Roundhill Magnificent Seven ETF is down 3.37% year-to-date.
Interestingly, venture capitalist Chamath Palihapitiya came to the defense of Alphabet's AI spending following the company's latest earnings report. He stated that Alphabet's long history of high returns on invested capital gives its management a "presumption of innocence" due to the "capital compounding machine" it has built.
Alphabet Class A shares closed Friday at $319.74, up 0.65%, and added another 1.56% in Monday's premarket trading. Class C shares rose 0.24% on Friday to $319.09, and then gained 1.51% in premarket trading.
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