The investor famed for calling the 2008 crash warns that the market's obsession with artificial intelligence shows dangerous parallels to the final months of the 1999 dot-com bubble.
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Michael Burry Cites 3 Alarming Signs of an AI Market Bubble
Michael Burry, the investor profiled in “The Big Short,” has intensified his warnings of an asset bubble in artificial intelligence, pointing to speculative excesses in venture capital and debt markets that mirror the period before the 2000 tech crash.
"It is just an asset bubble, plain and simple," Burry said in a recent Substack post. "In 1999 this happened too. The old economy and international stuff just got ditched in favor of the All-American bubble."
Burry highlighted data from Apollo Chief Economist Torsten Slok showing 87 percent of venture capital funding is now flowing to AI-related companies. He also noted that AI-linked borrowers represent nearly half of investment-grade bond issuance and roughly 38 percent of high-yield debt, figures that echo the dominance of internet companies in capital markets during the dot-com era.
The warning lands as the market braces for Nvidia’s critical earnings report on May 20, a release that could either validate the AI rally or expose its vulnerabilities. For Burry, the concentration of capital creates a "mass whale fall" of overlooked opportunities in non-AI sectors, where he is now deploying his own funds.
Burry's Anti-AI Portfolio
While cautioning investors about the AI frenzy, Burry is not simply moving to cash. He disclosed new and increased positions in several companies he views as undervalued and overlooked as capital chases AI themes. His firm, Scion Asset Management, has added to Latin American e-commerce company MercadoLibre (MELI), software maker Adobe (ADBE), payments firm PayPal (PYPL), and animal health company Zoetis (ZTS).
Most notably, Burry established a new full-sized position in athletic apparel retailer Lululemon (LULU). He described these stocks as part of the "mass whale fall happening away from the main spectacle," arguing they represent value in a market fixated on a single narrative. This strategy is a direct counter-position to the momentum-driven AI trades that have propelled the Nasdaq to record highs.
Echoes of 1999 in 3 Key Metrics
Burry’s argument rests on more than just sentiment. He draws direct parallels using three specific metrics:
1. **Venture Capital Concentration:** With 87 percent of VC money chasing AI, a vast majority of the market is being ignored, mirroring how "old economy" stocks were abandoned in 1999.
2. **Debt Market Saturation:** The 38 percent share of high-yield debt issuance for AI-linked firms is dangerously close to the 40-50 percent level seen for tech and telecom companies before the 2000 crash. Burry recalls that over $100 billion of investment-grade debt from that era was downgraded to junk within a few years.
3. **Valuation Metrics:** While Burry focuses on capital flows, other indicators support his thesis. The Shiller CAPE ratio recently touched 40.1, a level only previously reached at the peak of the dot-com bubble, suggesting equity valuations are stretched thin compared to historical earnings.
The situation creates a difficult environment for investors. Burry himself has cautioned against outright shorting the rally, acknowledging that "1999 went where no market had gone before, and I would say so can this one." Instead, his actions suggest a strategy of rotating out of the bubble's epicenter and into neglected but fundamentally sound companies.
This article is for informational purposes only and does not constitute investment advice.
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