BREAKING: Investor Michael Burry has issued a stark warning that Artificial Intelligence (AI) could fundamentally destabilize Big Tech’s profit margins. In a newly released Substack post, Burry, famed for his predictions during the 2008 financial crisis, claims that AI is pushing companies like Microsoft, Google, and Meta away from their lucrative, asset-light business models.
Burry’s insights come as AI investments surge, but he cautions that the return on invested capital (ROIC)—a vital measure of profitability—will decline as these tech giants shift toward more capital-intensive operations. “The measure to beat all measures is return on invested capital (ROIC), and ROIC was very high at these software companies. Now that they are becoming capital-intensive hardware companies, ROIC is sure to fall, and this will pressure shares in the long run,” Burry stated.
His comments reflect a growing concern among investors that the current AI boom mirrors the late-1990s dot-com bubble, which ultimately led to massive financial losses. Burry has described OpenAI as the “Netscape of our time,” signaling a potential market crash if profitability does not keep pace with escalating expenditures.
As AI companies invest heavily in infrastructure—data centers, chips, and energy-intensive technologies—Burry believes that many may not yield significant returns. He pointed out that without adequate returns on these investments, economic value diminishes, warning, “At some point, this spending on the AI buildout has to have a return on investment higher than the cost of that investment, or there is just no economic value added.”
Currently, Burry’s hedge fund, Scion Asset Management, holds significant short positions against AI leaders such as Nvidia and Palantir Technologies, reflecting his bearish outlook on the future of AI profitability. Regulatory filings from September 2023 confirm these positions, further intensifying scrutiny on the sustainability of current AI valuations.
As the AI landscape evolves, the pressure on stock prices could escalate, affecting not only major corporations but also investors worldwide. Burry emphasizes that declining ROIC could pose long-term risks to Big Tech’s dominance, potentially leading to widespread bankruptcies within the AI sector.
Many industry analysts are closely watching these developments, as Burry’s past predictions have proven accurate. The tech community is on alert, with some fearing that a financial panic could emerge as early as 2026 or 2027 if trends continue unchecked.
In summary, Burry’s latest insights reveal a critical inflection point for Big Tech as it grapples with the implications of AI. Investors are urged to reassess their positions amidst these alarming forecasts, as the landscape could shift dramatically in the coming years.
Stay tuned for more updates as the situation develops and investors react to Burry’s insights.
