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Michael Burry says the AI boom bears striking similarities to the dot-com bubble.
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The Big Short investor expressed his concerns in Substack posts and chat threads.
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“This is just an asset bubble, plain and simple,” Burry wrote.
Michael Burry says the AI boom mirrors the dot-com bubble.
Investors in the Big Short dissected both periods in Substack posts and discussion threads this week. He also expressed doubts about whether artificial intelligence can live up to its exciting effects.
“History is not a perfect guide, but I see so many technical and fundamental indicators coming to the same conclusion,” Burry told his subscribers on Substack Chat.
“The market was unprecedented in 1999 and I would say it will be the same this year,” he continued. “A lot of the indicators have reached that point.”
Burry became famous for his prescient bets on the housing crash that were chronicled in the book and movie “The Big Short.” Burry wrote in his Substack post that he bought more shares of Adobe, PayPal and Lululemon.
“These stocks were part of a massive whale fall away from the main spectacle,” he wrote. “This happened in 1999 as well. The old economy and international things had just been abandoned and replaced by an all-American bubble.”
Burry then laid out how AI is attracting significant amounts of early-stage capital and debt issuance. He cited Apollo’s Torsten Slok, who wrote in a recent report that 87% of venture capital funding this year has gone into artificial intelligence, up from less than 40% for Internet companies in 1999.
The value investor, who switched from running a hedge fund to writing on Substack late last year, also noted that the proportion of junk bond issuance related to artificial intelligence was similar to that in 2000 related to the technology, media and telecom industry.
“Today’s high-yield bond yields are 38%, compared with the 40%-50% yields then, belying the view that today’s AI bond issuance is cleaner and backed by more profitable companies,” Burry wrote.
“This is just an asset bubble, plain and simple,” he added.
Burry dismissed the idea that the AI boom is different from the dot-com bubble because more of the companies being funded today are profitable.
“We should remember that venture capital firms are funding loss-making companies in a way that is unprecedented in history, and much more so than in 1999,” he wrote.
“When people talk about money-losing dot-coms, they’re not only ignoring the fact that the biggest cash flow machines at the time – the telecoms and cable companies – were part of the bubble, but they’re also ignoring that there were more money-losing companies this time around that lost more money, they just weren’t public yet,” he said.
