Michael Burry says the seemingly unassailable positivity around AI reminds him of the dot-com and housing bubbles — and warns the mania could have far more devastating consequences than Enron’s collapse.
A subscriber to Burry’s Substack told him in a chat thread this week that it felt like “we are witnessing a massive coordinated effort to prop up the narrative.”
Burry replied: “That is how it felt in May of 2007 when the Fed Chair was saying there would be no contagion or a couple years earlier when he said there is no such thing as a housing bubble.”
“Or in 1Q2000 when every tech was showing crazy strong revenue growth selling to each other without the demand to back it up,” he added.
Ben Bernanke, the former Federal Reserve chair, famously dismissed concerns of a housing bubble in late 2005. In early 2007, he said that problems in the subprime mortgage market were unlikely to affect the broader markets or the wider economy.
In contrast, Burry diagnosed a housing bubble and anticipated its disastrous collapse. His enormous, contrarian wager was chronicled in the book and movie “The Big Short.”
The investor pivoted from running a hedge fund to writing about his personal portfolio on Substack late last year.
Burry’s third example seems to refer to internet startups juicing their growth during the dot-com bubble by selling to each other rather than to end customers.
He underlined how much higher startup valuations are today than during the internet boom in another comment this week. He wrote: “Need to look to private companies — the dot coms never went public this round. And they are 100-1000 times the valuation. 5000 unicorns.”
Big Tech bets on AI could backfire, Burry says
Burry struck a similar chord in other Substack comments this week. He raised the alarm on Big Tech companies pouring trillions of dollars into expanding AI infrastructure.
They’re “taking on epic risks and liabilities that they never had to take on before,” he said in one comment.
There’s “orders of magnitude more capital flowing to the buildout than value of the use case,” he said in another. “The maintenance cap ex on this is going to shock investors,” he continued, adding that returns on capital are poised to “crater,” hurting future investment.
Burry also issued a fresh warning on X after telling his followers earlier this week that “history is repeating,” and recommending they read a classic book about Enron’s fall from grace.
“This is so much bigger than one company, and orders of magnitude more dangerous to the economy and investors than Enron,” Burry wrote.
Enron famously used aggressive accounting to bolster its reported profits, and special-purpose entities to keep huge debts off its balance sheet, manufacture income, and inflate its stock price.
Burry has called out AI companies for overspending on microchips and data centers, dragging out depreciation to flatter their earnings, using off-balance-sheet structures to hide risk and leverage, and striking circular financing deals to keep the AI buzz going.
“This is a concentrated effort to inject capital into the AI ecosystem that literally comes back to these companies as revenue,” Burry said in a Thursday post. “Wall Street and the markets then judge the participants on their amazing revenue growth.”
Debt is making up a growing share of that capital, he continued, which “puts the bubble on a clock.”
While Burry has been warning about the AI boom and detailing his short bets against several of its biggest players for many months now, the major US stock indexes have largely brushed off his concerns and marched to record highs.
“My base case is 2028,” Burry said in his Thursday post. “That is when I think compute becomes too much. History says markets catch on well before that sort of turn. We will see.”
Burry didn’t respond to a request for further comment from Business Insider.
Read the full article here
