'Big Short' investor Michael Burry says the AI boom will end badly. He shared an old Warren Buffett story to explain why. - Business Insider
AI Bubble Alert: Michael Burry Sounds the Siren
In a recent Substack exchange, Michael Burry, the renowned investor and protagonist of the book and film "The Big Short," has raised concerns about an emerging AI bubble. Burry, who is known for his contrarian views and sharp insights, has been warning investors about potential market pitfalls.
Burry's Warning
In his Substack exchange, Burry expressed skepticism about the rapid growth and popularity of artificial intelligence (AI) stocks. He argued that the industry's enthusiasm for AI was " unsustainable" and that a prolonged slump is inevitable. Burry's concerns were sparked by several factors:
- Overvaluation: The investor noted that many AI-related stocks had seen significant price appreciation, making them overvalued.
- Lack of Regulation: The absence of effective regulation in the AI industry, he argued, was contributing to the bubble's formation.
- Ponzi Scheme-like Behavior: Burry likened some AI companies' business models to Ponzi schemes, where returns are generated by investing money from new participants rather than any actual profit.
Targeting Market Darlings
Burry specifically targeted several market darlings, including:
- NVIDIA: The graphics processing unit (GPU) manufacturer has seen its stock price rise significantly due to the growing demand for AI-related technologies.
- Google Cloud: As Google's cloud computing platform continues to gain traction in the AI industry, Burry sees it as a prime candidate for the bubble to burst.
- Microsoft Azure: Similar to Google Cloud, Microsoft's Azure platform is also experiencing strong growth, but Burry believes this may be driven by speculation rather than underlying fundamentals.
Consequences of a Slump
If Burry's warnings are correct, a prolonged slump in AI stocks could have significant consequences:
- Job Losses: A decline in the industry could lead to widespread job losses, particularly among those working in AI-related fields.
- Innovation Stagnation: The lack of investment in AI research and development could result in stagnated innovation, ultimately affecting various industries beyond just tech.
- Global Economic Impact: The AI bubble's collapse could have a ripple effect on the global economy, potentially leading to a recession or at least a significant slowdown.
Conclusion
Michael Burry's warning about an AI bubble serves as a reminder that even seemingly exciting and promising industries can be vulnerable to downturns. As investors and policymakers, it is crucial to remain vigilant and consider multiple perspectives when evaluating the growth prospects of emerging technologies like AI.