'The Big Short' Author Michael Burry: Boundless Optimism in the AI Market Echoes the Dot-Com and Housing Bubbles

Investor Michael Burry — the central figure of the book and film 'The Big Short,' famous for predicting the 2008 mortgage crisis — is comparing the boundless optimism surrounding the artificial intelligence market to the dot-com and housing bubbles of the 2000s. One of his subscribers on Substack described the current situation as 'a coordinated effort to keep the narrative alive.'

'It feels exactly like May 2007, when the Fed chair said there would be no contagion, or a few years before that, when people insisted there was no housing bubble,' Burry replied. He also recalled that in the first quarter of 2000, every tech company was showing artificially inflated revenue growth with no real demand behind it — just companies selling to each other.

Burry argues that attention should be paid to private companies: 'This time, the dot-coms haven't gone public. Their valuations are 100 to 1,000 times higher than back then — there are 5,000 unicorns (startups valued at over $1 billion),' he wrote. The investor also questioned the trillions of dollars Big Tech is pouring into AI infrastructure, arguing they are taking on massive risks and obligations they have never taken on before.

'The capital flowing into construction is several times greater than the value derived from using it,' Burry says, warning this could lead to staggering maintenance costs and a sharp collapse in returns on capital. He compared the situation to the collapse of Enron: 'This is much bigger than any single company and far more dangerous for the economy and for investors than Enron was.' Enron, it will be recalled, once inflated its earnings through aggressive accounting and off-balance-sheet structures.

According to Burry, AI companies are resorting to similar tactics — overspending on chips and data centers, stretching out depreciation schedules, using off-balance-sheet structures and circular financing deals: 'It's a concentrated effort to pour capital into the AI ecosystem, which then comes back around as revenue, and Wall Street values the participants based on that impressive revenue growth.' Even so, U.S. stock indexes have largely brushed off his warnings and keep climbing to record highs. 'My base case is 2028, when compute capacity becomes excessive. Markets usually sense it before that,' Burry says.