Michael Burry, the legendary investor immortalized in “The Big Short,” has emerged from relative silence to issue stark warnings about what he believes is a historic bubble in artificial intelligence. After closing his hedge fund to outside investors, Burry has been sharing his market analyses through Substack and X (formerly Twitter), with much of his recent commentary focused on the AI sector.
Burry’s concerns center on several key issues plaguing major tech companies driving the AI boom. He argues that these firms are experiencing a slowdown in cloud-computing growth while simultaneously overinvesting in AI infrastructure, including Nvidia chips and data centers. According to Burry, companies are manipulating their financial presentations by dragging out depreciation schedules to artificially inflate short-term earnings, destroying shareholder value through excessive stock-based compensation, and engaging in “give-and-take” contracts with one another to maintain artificial momentum and buzz around AI.
The investor has drawn explicit parallels between the current AI mania and previous market disasters, comparing it to both the dot-com bubble and the mid-2000s housing bubble that made him famous. He has specifically labeled OpenAI as the “Netscape of our time,” claiming the company is “hemorrhaging cash.” Burry has put his money where his mouth is, disclosing short positions against AI darlings Nvidia and Palantir, and boldly predicting the AI bubble will burst within two years.
In a recent podcast interview with author Michael Lewis, Burry stated: “I think the stock market could be in for a number of bad years.” He has advised investors who have profited from high-flying AI and tech assets to cash out their winnings before the inevitable correction.
Beyond AI, Burry has shared insights on his broader investment philosophy and portfolio. He revealed he has owned gold since 2005 and considers Alphabet (Google’s parent company) the “value investor’s favorite” among mega-cap tech stocks. His personal portfolio includes positions in Lululemon, Molina Healthcare, Shift4 Payments, and government-sponsored enterprises Fannie Mae and Freddie Mac. Interestingly, Burry disclosed that he has known Nvidia’s CFO Colette Kress for years and purchased Nvidia stock in 2017 or 2018, well before the current AI frenzy.
Key Quotes
I think the stock market could be in for a number of bad years
Burry shared this warning during a podcast interview with Michael Lewis, suggesting that the AI bubble and broader market conditions could lead to an extended downturn for equity investors.
OpenAI is the Netscape of our time, hemorrhaging cash
Burry drew a direct parallel between OpenAI and Netscape, the dot-com era browser company that became synonymous with the late-1990s tech bubble, suggesting OpenAI’s business model is unsustainable despite its high profile.
Our Take
Burry’s timing and specific concerns deserve serious consideration, even if his track record isn’t perfect. His focus on the mechanics of how companies are inflating AI-related earnings—through depreciation manipulation and stock-based compensation—reveals potential accounting red flags that many investors may be overlooking in their enthusiasm. The “give-and-take” contracts he mentions suggest a circular economy where tech giants are essentially paying each other to create the appearance of robust AI demand. However, it’s worth noting that Burry has been early on previous calls, and being early in markets can be indistinguishable from being wrong in the short term. The two-year timeline for a bubble burst is specific and testable. What’s particularly interesting is his nuanced view—shorting Nvidia and Palantir while praising Alphabet and having previously owned Nvidia himself—suggesting he sees differentiation within the AI sector rather than blanket pessimism.
Why This Matters
Burry’s warnings carry significant weight given his proven track record of identifying major market bubbles before they burst. His successful prediction of the 2008 housing crisis earned him legendary status among investors, making his current concerns about AI impossible to ignore. This matters because the AI sector has become the primary driver of stock market gains, with companies like Nvidia, Microsoft, and Google commanding trillion-dollar valuations largely based on AI growth expectations.
If Burry is correct, the implications would be far-reaching. A bursting AI bubble could trigger a broader market correction, affecting not just tech stocks but the entire economy. Businesses across industries have been investing heavily in AI infrastructure and capabilities, and a sudden devaluation could lead to massive write-downs, job losses, and a reassessment of AI’s near-term economic value. The warning also raises questions about whether current AI investments are sustainable or if companies are engaging in a form of collective delusion, propping each other up through circular contracts and inflated projections. For investors, workers in the tech sector, and businesses planning AI strategies, Burry’s analysis suggests the need for caution and realistic expectations about AI’s timeline for delivering returns.
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