If Michael Burry’s forebodings about the near future of the stock market don’t yet have you feeling restless about your portfolio, the star investor — famously played by Christian Bale in TheBig Short — has some new insights into why the present boom is bound to turn into a bubble (1), and also how to brace for it.
The same instincts that helped the former hedge fund manager predict the 2008 financial crisis have spurred Burry to issue stern warnings about where the market is now headed, bolstered as it is by what he sees as AI over-speculation and “catastrophically overbuilt” (2) AI infrastructure.
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The confluence of this and other risk factors have the Scion Asset Management founder taking a “significant leveraged short position” in anticipation of a fall.
In recent posts to his Substack, where Burry imparts his financial meditations to more than 200,000 subscribers (3), he points to the ongoing military action in Iran, surging oil prices, and the AI-induced stress on private lending (4) as additional potential catalysts of a forthcoming bust that he’s been raising alarms about for some time.
“The market has jumped the shark”
In his most recent analysis on May 11 (5), Burry compared the feeling surrounding the past week’s record-breaking S&P 500 rally (6) to the one that filled the air pre dot-com crash, characterized by unfounded over-hype and poised for an inevitable snap back to reality.
“The market has jumped the shark,” Burry wrote, revealing how the pattern of the recent market parallels those just prior to the 2000 crash, the Great Recession, the 1970s Middle East Oil Crisis, and even 1929’s Black Monday. “The end of… this… is nigh,” Burry said gravely.
Markets are indeed not only mirroring, but in some ways surpassing the meteoric, unsustainable rise that preceded the burst of the dot-com bubble (7) and ensuing recession, with the Nasdaq 100’s top 10 stocks skyrocketing an unthinkable 784%, on average (8), since the same time last year — even more than the 622% increases seen before the dot-com crash.
At the same time, the market’s chasm is growing, with less than 55% of the S&P 500’s components (9) rising above the 50-day moving average despite a significant (7%) spike in the overall index — a trend that Burry, and others, say is a huge red flag.
Touching on this point in his own newsletter this week (10), tenured investment strategist Jim Paulsen noted “stock market rallies led by new era stocks have generally been sustainable provided the rest of the stock market remained reasonably strongly positively correlated… but when new era stocks begin racing ahead almost in isolation, this has usually signaled caution.”
Read More: Almost 50 with no retirement savings? Here’s why you shouldn’t panic
Overdue for a burst bubble?
Burry believes we’re simply overdue for something more than a correction at this point in time, given that valuation multiples have soared above historical norms for more than three decades now. The S&P 500 Shiller PE Ratio — which uses long-term data to inform stock market over- or under-evaluation — is over 40 (11) as of May 2026, the highest since the 2000 tech bubble and well above the 17 average. But, some say the measure is unfair to young companies (12), like those in AI.
Some of these firms, though, have raised an absurd level of funding — up to 150 times their revenue (13) — in the name of what is arguably unproven potential. Though monthly AI usage has billowed to more than an estimated one billion people (14) worldwide, the skyrocketing capital expenditure on tech projects admittedly has an unclear long-term return on investment.
“A bunch of the capital that’s being deployed will actually not produce any returns,” is Goldman Sachs CEO David Soloman’s take (15) on AI’s ascension. Other economists have called the hundreds of billions flowing into AI development “starving everything to feed one mouth” (16) as the segment dangerously props up overall market performance (17).
Burry himself has criticized AI’s “supply-side gluttony” (18) that he believes does not match existing demand, revenue, nor realistic revenue potential.
Also concerning is the fact that AI expenditures, which were covered by their respective companies’ cash flows to a point, are increasingly being funded by debt (19) — and US economic growth is increasingly reliant on AI growth (20). Tech earnings and valuations, according to Burry, are also often being falsely inflated as they fail to take stock-based compensation into account.
How to prepare yourself
Any good advisor would tell you to never skew your portfolio too hard in the direction of one name, as viral as it may be (here’s looking at you, Nvidia [NASDAQ: NVDA]). If you still want to bet on AI, you can spread your exposure more broadly with tech ETFs and mutual funds rather than individual stocks that have you risking it all.
Burry’s latest advice? “Reject greed” (21) and consider culling those red-hot chip stocks “almost entirely.”
“If one happens to own some of these stocks that are mooning, now is the time to consider taking profits [and] recognize that what’s happening is very extreme, with historical precedents that are rather unfortunate,” he wrote.
“Anyone lucky enough to be riding these parabolic moves, by not selling, is betting on one’s own ability to jump off at or near the top… this, all of it, is the scene of the bloody car crash, minutes before it happens.”
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see ourethics and guidelines.
Business Insider (1),(2),(8),(18); Substack (3); Bloomberg (4); Michael J Burry’s Substack (5),(9),(21); Financial Post (6); Goldman Sachs (7); Paulsen Perspectives (10); Multpl (11); Seeking Alpha (12); LinkedIn (13),(19); Data Reportal (14); YouTube (15); Bulletin of the Atomic Scientists (16); Yahoo Finance (17); Fortune (20)
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