AI bubble to burst sooner than expected? Michael Burry believes it would take only one season of revenue disappointment

While the AI trade continues to see sharp swings on Wall Street, popular American investor Michael Burry has issued a fresh warning, now seeing the AI bubble bursting sooner than expected.

The market veteran, popularly known as the ‘Big Short’ investor and famous for correctly predicting the 2008 housing bubble, reshuffled his bets against AI giants after research over the weekend suggested the bubble around artificial intelligence frenzy bubble could pop even before what he previously expected.

“Fundamentally, I am moving timelines up. As such, I want more leverage in my short positions. Better timelines make leverage more palatable," Burry wrote in his Monday investment newsletter, as quoted by CNBC.


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He swapped his short positions to put options on key AI stocks, giving him more cost-effective leverage over a shorter time horizon. This implies that he sees these stocks falling sharply even sooner than he had previously planned. His new bets suggest that the AI trade could flip by next year.

Only one season of revenue disappointment can trigger AI crash

Michael Burry cited recent research from Ares Management that said it would take only a season in which AI revenue disappoints the massive capital expenditure that hyperscalers are putting behind it. “In that scenario, a handful of boards, predisposed to redeploy capital toward the highest-conviction bet, would simply need to conclude that the highest-conviction bet has shifted,” the report said.

This comes after Burry said in August that the AI crash could begin from 2028. However, his latest comments imply that he expects this to happen sooner. Recently, he said the President Donald Trump-led US administration cannot afford to let the AI boom fail. He explained that AI infrastructure buildout has become a critical support for the US economy, keeping very little room for the Trump administration to let the ongoing AI boom weaken, Stockwits reported. Notably, Burry has been shorting AI-linked stocks and warning investors of a sharp selloff ahead.

"Trump and his team know that the AI narrative and the buildout is the only thing keeping this economy going, and the most positive thing happening this year," Burry wrote in a recent Substack chat, as quoted by the report. "They cannot afford to let it fall," he added, while questioning what Washington could actually do to prevent a downturn.

Also Read | Trump cannot afford to let AI boom fail: 'Big Short' investor Michael Burry explains why

His latest comments come as investors increasingly fear a possible slowdown in the AI boom, after OpenAI, Anthropic and executives of other tech firms warned of the increasing risks to humanity following the rapid advancement of the nascent technology. Anthropic CEO Dario Amodei in a long X post earlier this month, ‌called on AI companies to slow the rate at which they advance model capabilities amid mounting fears of misuse of artificial intelligence. The Anthropic CEO wrote that in nearly a year, AI agents "could be capable of taking over the entire internet, potentially causing hundreds of billions of dollars in damage."

Michael Burry sees crash similar to 1987

Recently, Burry said he continues to believe that the market is close to a major top, warning of a similar crash to that of 1987 when Dow Jones recorded a historic 23% plunge which led to the introduction of regulatory circuit breakers. However, the market investor noted that the S&P 500 making new highs likely will bring new money into the market.

Earlier this year, Burry wrote on a Substack post that he sees many indicators, both technical and fundamental, lining up for the same conclusion as the Dotcom crash. "1999 went where no market had gone before, and I would say so can this one...It is already there on a number of indicators," he said, arguing that massive venture capital flows, rising AI debt issuance, and extreme market optimism are creating conditions where valuations may detach from economic reality.

Burry’s popular bet against the housing market was depicted in the 2015 movie titled 'The Big Short', which starred Christian Bale, Ryan Gosling, Steve Carell and others.

Also Read | 'Big Short' investor Michael Burry hates the AI trade, but the bear is bullish on these stocks

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.