Michael Burry Just Backed Up the Truck on These 3 Undervalued Tech Stocks

The article highlights Michael Burry's recent bullish-looking value bets on Adobe, Alibaba, and PayPal, arguing that their depressed valuations may offer upside despite AI disruption and broader market skepticism. Adobe trades at 11.1x trailing P/E, Alibaba at 16.5x, and PayPal at 7.9x, with the author framing each as a potential turnaround or AI-enabled value opportunity. The piece is opinion-driven rather than event-driven, so the likely market impact is limited.

Analysis

The bigger signal is not that these three names are “cheap,” but that the market is increasingly pricing a binary outcome: either AI destroys the old software/payments model, or incumbent distribution becomes the fastest path to monetization. That creates a compressed setup where bad news is being pre-embedded, while any proof of AI-driven conversion, retention, or new product attachment can drive outsized multiple expansion because positioning is likely still skeptical rather than crowded long.

ADBE is the clearest second-order beneficiary of the backlash against low-quality AI output. If users and enterprises start valuing provenance, workflow control, and brand-safe creation over raw generation, the monetization pool shifts from model vendors to the application layer with embedded governance. The risk is that the next 2-3 quarters show incremental AI features but no visible re-acceleration in net new ARR, which would keep the stock trapped despite being statistically cheap.

BABA’s optionality is underappreciated because the market is still treating China AI as a macro trade, not a product-cycle trade. The key catalyst is not just model capability but whether AI gets embedded into commerce, logistics, and cloud with measurable take-rate lift; if that happens, the rerating could be abrupt because the base valuation is still anchored to legacy China risk rather than AI monetization. PYPL is the most fragile of the three: the upside case depends on cost discipline and product simplification translating into stabilized TPV and take rate, but if payment routing pressure continues, any turnaround becomes a slow grind rather than a sharp mean reversion.

The contrarian view is that these are not classic value traps if the market has already forced them into “option value” pricing. In that regime, downside is partly capped by sentiment exhaustion, while upside comes from even modest evidence that AI is preserving relevance rather than displacing it. The trade is therefore less about heroic fundamental conviction and more about exploiting asymmetric expectations over a 6-18 month horizon.

Key Decisions for Investors

• Initiate a starter long in ADBE on weakness, with a 6-12 month horizon; risk/reward improves if the market stops pricing existential displacement and instead prices workflow augmentation. Use a tight risk budget because the stock needs evidence, not just cheapness.
• Enter a medium-term long in BABA as an AI optionality trade, sized smaller than a core position due to macro/geopolitical noise; best held for 9-18 months if cloud/commerce AI adoption starts showing up in operating metrics.
• Avoid outright long PYPL until management proves stabilization in TPV and engagement; if you want exposure, prefer a call spread 9-12 months out to define downside while retaining turnaround convexity.
• Pair trade: long ADBE / short a basket of pure-generation or lower-quality AI beneficiaries over 6-9 months, on the thesis that applications with embedded workflow ownership outperform commoditized AI exposure.
• For event-driven positioning, wait for post-earnings or guide-down volatility before adding; these names are likely to offer better entries after confirmation that expectations remain too low rather than pre-positioning ahead of the catalyst.