Michael Burry Is Short This AI Darling. Should You Be Worried?

Michael Burry is one of the world's most famous investors. His bets against the U.S. housing market ahead of the subprime mortgage crisis proved to be massively successful, and were profiled in Michael Lewis' book The Big Short and the film of the same name. Burry's prescience regarding one of this century's defining financial crises is a testament to his analytical prowess, so it's little wonder that his analyses and opinions still carry weight in the financial world.

Notably, Burry is skeptical today about the valuations of some of the world's most high-profile artificial intelligence (AI) stocks -- and Micron (NASDAQ: MU) is one of the companies that he is betting against. Should Micron shareholders be worried?

Why is Burry bearish on Micron?

At first glance, the case for Micron being an overvalued stock could look quite weak. The company is trading at just 5.4 times this year's expected earnings. Meanwhile, it has a one-year forward price-to-earnings ratio of roughly 4.6. The forward P/E ratio of the S&P 500 index sits somewhere around 19. Given that Micron is growing earnings at a far faster rate than the average for companies in the benchmark index, it's not unreasonable to suspect that the company is currently undervalued.

In the fourth quarter of Micron's fiscal 2026, which ended on Sept. 3, the company posted non-GAAP (adjusted) earnings per share (EPS) of $33.42, significantly exceeding the average analyst estimate of $31.61. Adjusted earnings per share rose 1,003% year over year, and sales rose 379% to $54.2 billion. Additionally, the company issued guidance that suggests that sales and earnings will continue growing at aggressive clips.

So why is Burry betting against Micron stock?

The semiconductor industry has always had a high level of cyclicality, and the memory chip arena where Micron operates has historically been even more prone to wide cyclical shifts. The company and its peers are currently enjoying a massive surge in demand for the high bandwidth memory (HBM) chips used in artificial intelligence (AI) processors. The resulting deep shortage in memory has pushed prices and margins sharply higher. But Burry is betting that this supply-and-demand imbalance will follow its historically cyclical pattern and reverse, putting an end to Micron's explosive growth story.

Additionally, Burry has raised valuation risks connected to circular financing deals being used across the AI industry, as well as the rise of Chinese memory-chip makers that could dampen Micron's pricing power. With AI leaders devoting massive capital expenditures to build out their infrastructure foundations, and companies on both the hardware and software sides of the industry making business deals, partnerships, and equity investments with each other, he may be right to question the circular nature of this spending and the sustainability of massive capital expenditures. Similarly, the risk that a flood of cheaper memory chips from China could impair Micron's growth trajectory is real.

Burry's bet against Micron doesn't necessarily mean that investors should sell their holdings or refrain from buying the stock, but it would be a mistake not to consider the risk factors he is highlighting.

Keith Noonan has positions in Micron Technology. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.