The risk behind the boom: Michael Burry warns about the AI bubble

Source: CritpoTendencia Original Title: The Risk Behind the Boom: Michael Burry Warns About the AI Bubble Original Link: Michael Burry, known worldwide for predicting the subprime mortgage crisis and popularized by the movie The Big Short, has raised alarms once again. This time, his focus is the rise of artificial intelligence. In a recent interview and public comments, Burry claims that the AI market shows clear signs of a bubble that could burst abruptly.

His concern is not limited to technological enthusiasm, but to the way that valuations, capital expenditure, and certain accounting practices are fueling a scenario reminiscent of the dot-com bubble.

In fact, his interview was soon followed by a post on X, which includes charts indicating that the United States is increasing its spending on technology, similar to what happened in 1999-2000 with the dot-com bubble and 2007-2008.

Michael Burry’s Reasons for Calling It a Bubble

For Burry, the core problem is the gap between the expectations the market is pricing in and the actual results AI companies are generating. While investment in infrastructure, chips, and data centers is skyrocketing, many companies have yet to show proportional returns.

Recent reports indicate that a high percentage of organizations investing in generative AI are still not seeing any measurable benefit, despite billions of dollars being committed.

Burry sees parallels with previous episodes of financial euphoria: abundant capital, narratives of total transformation, and an almost unquestionable confidence that business models will justify themselves later on.

According to his analysis, part of the apparent profits rest on optimistic accounting practices, especially regarding the depreciation of hardware that becomes obsolete much faster than reflected on balance sheets. This creates a sense of profitability that may not hold up when the pace of technological upgrades accelerates.

Additionally, Michael Burry highlights the risk of concentration. A small group of large tech companies holds a disproportionate share of the stock market value tied to AI. If any of these companies undergoes a significant correction, the impact could drag down the entire sector, amplifying volatility in major indexes.

Signs Pointing to a Future Correction

Among the elements Burry finds most concerning are the pace of capital expenditure and the circular nature of some investment flows. Companies developing AI models acquire huge volumes of specialized hardware, while the manufacturers of that equipment benefit from increasing valuations that, in turn, facilitate further expansion.

This cycle, according to Michael Burry, can be sustained as long as the market believes in unlimited growth, but it becomes fragile if AI-driven revenues fail to meet projections.

The market, however, is already pricing in a scenario where AI completely transforms the economy, creating a gap between current reality and the implied value in many stock prices.

What Would Happen If the AI Bubble Bursts

If the scenario Burry envisions comes true, the adjustment would not be limited to just a few companies. A correction in the valuations of large AI companies could affect global indices, funds heavily exposed to technology, and investment vehicles that have bet on the theme as a main driver of growth.

This would have consequences for access to funding, the pace of project deployment, and the market’s willingness to continue supporting capital-intensive initiatives.

Should the bubble burst, it would also force a reassessment of which AI-related business models are truly sustainable. Companies able to demonstrate tangible returns, solid cash flows, and clear use cases could consolidate after the market correction, while projects supported only by expectations would lose relevance.

Ultimately, Burry’s warning serves as a reminder that even the most promising technologies are not immune to financial cycles.

Artificial intelligence can continue to advance and add value, but the market will have to adjust its expectations to the real pace of adoption, returns, and maturity of the models. Between enthusiasm and caution, the next chapter of the AI boom has yet to be written.