Michael Burry Shuts His Fund and Launches Newsletter to Speak ‘Freely’ | Observer
Michael Burry Thinks the AI Boom Is Headed for Trouble—Here’s Why He’s Concerned
Michael Burry, the investor famously portrayed in The Big Short, is once again sounding the alarm—this time about artificial intelligence. In a recent Substack debate, Burry shared why he believes today’s AI frenzy could end badly for investors, tech giants, and the broader market.
And to make his point crystal clear, he turned to an old but powerful lesson from none other than Warren Buffett.
Why Michael Burry Is Skeptical About the AI Boom
Burry’s concern isn’t about AI as a technology—it’s about how aggressively companies are spending to stay ahead of competitors.
According to him, major tech players—often called hyperscalers, such as Microsoft and Alphabet—are pouring billions into:
- Advanced AI chips
- Massive data centers
- Expensive infrastructure that could become obsolete quickly
All this spending is aimed at powering AI tools like chatbots and enterprise automation. But Burry believes many of these tools will soon become commoditized, meaning they won’t offer long-term pricing power or profit advantages.
The Warren Buffett Escalator Story That Says It All
To explain his thinking, Burry retold a story from Warren Buffett’s early investing days in the 1960s.
Buffett once briefly owned a Baltimore department store called Hochschild-Kohn. When a rival store across the street installed an escalator, Hochschild-Kohn felt forced to do the same—simply to keep up.
The result?
Neither store gained a lasting advantage.
Margins didn’t improve.
Costs went up.
Both ended up exactly where they started.
Burry believes AI spending today looks eerily similar.
Companies are investing not because it guarantees returns—but because they fear being left behind.
Why Burry Thinks AI Spending Could Become Wasteful
Burry argues that much of today’s AI investment resembles an “escalator to nowhere”—expensive upgrades that don’t meaningfully improve profitability.
His key worries include:
- Rapid obsolescence of AI hardware
- Overcapacity in data centers
- Lack of durable competitive advantages
- AI features becoming standard rather than differentiating
In his view, this could lead to a prolonged slump in AI-related stocks once expectations collide with economic reality.
Calling Out Market Darlings
Burry didn’t stop at theory. He reportedly questioned the long-term outlook for popular AI-linked companies like Nvidia and Palantir, and expressed surprise that Alphabet lost its early leadership in AI innovation.
For Burry, these examples reinforce his broader warning: market enthusiasm may be running far ahead of sustainable business fundamentals.
What This Means for Investors
Michael Burry’s message isn’t anti-AI—it’s a reminder to stay grounded.
History shows that:
- Not every transformative technology creates lasting profits for early investors
- Heavy spending doesn’t always translate into durable returns
- Competitive pressure can erase margins faster than innovation creates them
As with past tech booms, Burry believes discipline, patience, and valuation awareness matter more than hype.
Bottom Line
Michael Burry’s AI warning echoes a timeless investing lesson: just because everyone is building an escalator doesn’t mean it leads somewhere profitable.
Whether his prediction plays out or not, his perspective adds a valuable counterbalance to the optimism surrounding AI—and offers investors a reason to pause, think, and look beyond the buzz.
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