Rob Citrone of Discovery Capital stated that global emerging markets are significantly undervalued. Following stronger performance in global equity markets compared to the U.S. in 2025, Citrone predicts that U.S. stocks will continue to underperform relatively in the future. The billionaire hedge fund manager indicated that he is shorting the U.S. market while taking long positions in select international equities.

The founder and portfolio manager of Discovery Capital Management explained on CNBC's "Squawk Box" on Tuesday that he believes overseas emerging markets—particularly certain Latin American countries—offer greater upside potential in 2026. He attributed this partly to elevated valuations in U.S. equities.

"U.S. stock valuations are more than 40% higher than the rest of the world," Citrone said. "U.S. stocks deserve a premium, but 40% is a bit excessive."

One of his key concerns is the uncertainty surrounding the return on investment from heavy capital expenditures driven by artificial intelligence and data centers. Recent earnings reports from major cloud service providers alone project a 70% increase in capital expenditures for 2026, reaching $600 billion.

However, with entire sectors frequently being sold off due to fears that AI could disrupt future growth, questions arise about whether companies will achieve higher returns from AI or be displaced by it.

"We don't know who the winners will be. I don't think everyone can be a winner—that's part of the problem," he noted. "You see significant adjustments in sectors and companies almost daily because people are fearful about the future."

Citrone is optimistic about emerging markets because companies in these regions often operate as monopolies or oligopolies, meaning their businesses are more protected. They are not forced to rush into AI investments to keep up with competitors, thereby avoiding associated risks.

He is particularly bullish on Mexico, citing strong prospects due to its focus on strengthening ties with the U.S., low corporate valuations, and dominant market positions with little competition. He added that Argentina also holds substantial upside potential following midterm elections that consolidated President Javier Milei's power, paving the way for further policy reforms.

Citrone also mentioned that he continues to short so-called "crypto treasury" companies, including Michael Saylor's Strategy. Since last October, Bitcoin has fallen more than 40%, and shares of these firms have declined significantly.

"These crypto treasury companies had extremely high valuation premiums that, in my view, were completely unjustified," he stated. "I believe shorting them is a better strategy than shorting Bitcoin directly."