"The market can remain irrational longer than you can remain solvent," is a financial industry shibboleth most investors have learned though a great deal of pain.
The quote, attributed to legendary economist John Maynard Keynes, isn't likely to be put to the test by Michael Burry, the famed investor who correctly bet against the housing market in 2006, but it's still worth exploring.
Burry's wagers against two of the market's iconic artificial intelligence stocks -- Nvidia and Palantir -- were unveiled in a Securities and Exchange Commission filing published late Monday. Social media posts underlining his views on Nvidia's place at the center of circular AI financing soon followed.
He's not exactly selling the stocks in question, as his short position is created through the purchase of put options, but his directional view is most definitely something markets, and company executives, have taken note of.
"When I hear short sellers trying to call the AI revolution into question it's super triggering," Palantir CEO Alex Karp told CNBC on Tuesday as his stock slumped 7% on Tuesday despite a blowout set of third quarter earnings last night.
Karp's emotions aside, this has absolutely been a difficult market to bet directly against.
The S&P 500 produced a total return of 2.3% last month, extending its longest winning streak since 2021 and lifting the benchmark to its 34th record high of the year.
The kicker, though, is that Bank of America data suggests the so-called Magnificent Seven tech stocks were responsible for around 80% of the October advance. The trend has carried into November, as well, with the Mag seven now up a collective 5.4% over the past month compared with a 2.1% decline for the equal weighted S&P 500 index.
Comments last night from a pair of Wall Street CEOs -- Goldman Sachs' David Solomon and Morgan Stanley's Ted Pick -- warning investors of an impending correction in a market that's trading at a multiple that's well north of its five-year average also honed the case for those looking to bet against it.
But take heed of the Keynesian warning.
The final two months of the year, and the six month stretch from November to April, typically deliver the strongest equity market gains, according to LPL Financial's chief technical strategist Adam Turnquist.
And there's a fundamental soundness to the market that belies concerns of a bubble in its AI-powering engine as well.
Nvidia, which reports its fiscal third quarter earnings later this month, is likely to be the principal beneficiary of the huge increases in capital spending unveiled by the megacap tech giants such as Microsoft, Google, Amazon, and Facebook parent Meta Platforms last week.
The four major hyperscalers, in fact, are likely to shell out more than $480 billion on AI projects next year. All of them powered in some way by Nvidia components.
Betting against the company with an 80% share of the AI chip market seems risky on its face. Doing so when its customers are telling you directly that they plan to buy more stuff is even more so.
Broader tech earnings are likely to comprise around 45% of the $597.7 billion in collective third quarter profits for the S&P 500, and contribute around 47% of the fourth quarter tally as well.
Nvidia, meanwhile, isn't really that expensive. It trades at around 30 times the earnings that analysts see it generating over the next 12 months. That's lower than Mag Seven peers Apple and Microsoft and only modestly higher than Amazon's 26 times.
Palantir is a different story, of course. It's wildly overpriced compared with the broader market, but it's also up more than 370% over the past year alone and it's loved by the investors that have profited from it.
We don't know enough about Burry's position to know if solvency will be an issue anytime soon. But we do know how long this market has remained somewhat irrational since the launch of OpenAI's ChatGPT in November of 2022.
I bet I know where Keynes's money would go.