Caterpillar's stock had more than doubled in the past year. Companies scrambling to erect AI data centers drove a surge in demand for the heavy equipment manufacturer. But investor Michael Burry just placed a big bet against it.
A short position is a bet that a stock will go down. Burry said, "Caterpillar "has always done great for me on the long side in the past"," a statement indicating he had previously made money betting the stock would rise. Now he is betting against it.
He said the stocks are overvalued - meaning their prices have risen too far above what they are really worth. The AI-driven rally pushed them too high, in his view.
The damage was not limited to Caterpillar. Applied Materials, a company that makes equipment for semiconductors, dropped more than 11% on Wednesday. That came after its stock had surged nearly 150% so far this year.
Get your free investing masterclass bonus when you join Market Briefs, our free daily newsletter
The iShares Semiconductor ETF (SOXX), which holds many chip stocks, fell more than 6%. It had doubled in value this year. Nvidia, a leader in AI chips, saw its stock drop 3.3% before recovering some of the loss.
The broader chip sector had been on a tear. The Philadelphia Semiconductor Index, a group of chip stocks used to measure performance, rose 88% in the second quarter. For the first half, it was up 101%. That kind of rally has prompted investors to question how much further it can go.
Even Tesla was not immune. The electric car maker, led by Elon Musk, closed at $420.60 on Tuesday, down more than 5% for the year. Burry has been bearish on Tesla for a while. In December, he called the shares "ridiculously overvalued" and warned about shareholder dilution.
Burry's bearish stance comes amid a broader debate about the sustainability of AI-driven stock gains. Burry previously profited from the 2008 housing crash by betting against mortgage-backed securities, giving his short calls outsized attention.
The market's decline mirrors rising doubts that AI-fueled stock prices can be maintained. Some analysts argue that while AI demand is real, the market may have priced in years of growth. Because Burry is known for going against the crowd, his bearish stance lends credibility to the cautious outlook.
Burry's bet also comes as investors reassess the sky-high valuations of AI-related stocks. The Philadelphia Semiconductor Index's 101% first-half gain has sparked debate about whether such rapid growth is sustainable. Some worry that the market has already priced in years of future AI adoption, leaving little room for error.
Burry, who famously predicted the 2008 housing crash, often profits from betting against overhyped sectors. His latest move adds to the growing caution among market participants.
Subscribe to Market Briefs, our free daily newsletter, and claim your bonus investing masterclass