Source: Jinshi Data
Michael Burry, the real-life inspiration for the "Big Short" who is famous for predicting the collapse of the U.S. housing market, has warned that the current stock market's obsession with artificial intelligence is beginning to resemble the final stages before the bursting of the dot-com bubble.
In an article published on the Substack platform last Friday, Burry wrote that he listened to financial TV and radio programs while driving long distances and felt that "everyone was talking about AI endlessly and nobody was talking about anything else all day."
The investor, best known for his successful prediction of the U.S. housing market crash, said that the stock market no longer reacts logically and substantively to economic data such as jobs reports or consumer confidence.
Last Friday, the S&P 500 hit a record high as traders focused more on the slightly better-than-expected April nonfarm payrolls report than on the record low consumer confidence index.
But Bury writes that stock price fluctuations are not due to employment or consumer confidence, “They’re going up in a straight line simply because they’ve been going up in a straight line, and all that’s behind it is a two-letter assertion that everyone thinks they understand… It feels like the last few months of the bubble in 1999-2000.”
Burry compared the recent performance of the Philadelphia Semiconductor Index (SOX) to the surge before the tech stock crash in March 2000. The index rose more than 10% last week, bringing its year-to-date gain to 65%.
Burry made these remarks as investors flocked to artificial intelligence-related stocks over the past two years, driving major U.S. stock indices to record highs. Semiconductor companies and mega-tech stocks related to AI infrastructure and software led the rally, with the craze for generative AI fueling a sharp increase in valuations.
Legendary macro trader Paul Tudor Jones, founder and chief investment officer of Tudor Investment Corporation, has also compared the current AI-driven rally to the period before the bursting of the dot-com bubble, though he believes the bull market may have room to rise further.
Jones told CNBC’s “Squawk Box” that the current environment feels like 1999—about a year before tech stocks peaked in early 2000—and he estimates the rally could continue for another year or two .
At the same time, Jones also warned that if valuations continue to inflate, the eventual correction could be very sharp.
Jones stated that if the stock market were to rise another 40%, the ratio of stock market capitalization to GDP could reach an astonishing 300% or even 350%. "Everyone knows that there will be some kind of jaw-dropping correction at that point."
