Famed investor Michael Burry is making a notable move into the beleaguered software sector, asserting that the recent downturn in stocks resulted more from technical market pressures rather than a decline in the underlying business fundamentals. In a recent post on his Substack, Burry explained his belief that a “reflexive positive feedback loop,” which links falling equity prices to stresses in bank debt associated with software companies, has exaggerated the sector’s decline. He views this situation as an opportunity for strategic investment.
Burry emphasizes that the technical pressures from issues surrounding private credit and software-related debts are unlikely to significantly impact these stocks for much longer. His commentary comes amidst increasing anxieties regarding the potential of artificial intelligence to disrupt established business models within the software industry, posing risks to long-term growth forecasts.
Notably, the iShares Expanded Tech-Software Sector ETF has experienced a significant drop of approximately 28% since its peak in September, a downturn that has pushed the sector into bear market territory, showcasing a rapid deterioration in market sentiment toward what was once considered a Wall Street favorite.
In this context, Burry has disclosed that he has established a position of roughly 3.5% in PayPal, while also holding onto shares in Fiserv, Adobe, Autodesk, and Veeva Systems. He indicated plans to expand his portfolio further with investments in Salesforce and MSCI. Importantly, Burry reassured investors that none of the companies he is targeting are heavily reliant on private credit markets.
Meanwhile, there has been a noticeable trend of retail investors withdrawing funds from various private credit funds over the past couple of months, with many of these loans linked to software firms. Addressing the evolving landscape, Burry acknowledged that some companies may face severe challenges due to advancements in large language models, but he does not anticipate this for his selected investments. He has conducted a thorough analysis of these companies, considering their competitive positioning and fundamental investment potential, and feels confident in his strategy moving forward.
