'Big Short' investor Michael Burry believes that AI is making Big Tech companies even less favorable businesses

Michael Burry Raises Concerns Over the AI Surge

• Michael Burry, known for his role in "The Big Short," is wagering against the current AI-driven tech rally.
• In a recent Substack post, Burry highlighted that major technology firms are experiencing a decline in their return on invested capital (ROIC).
• He attributes this trend to artificial intelligence, which is steering these companies away from their traditionally asset-light models.

Michael Burry, the investor who gained fame through "The Big Short," believes that the days when tech giants could generate massive profits from minimal investments are coming to a close.

According to Burry, artificial intelligence is the main factor behind this shift.

In a recent discussion on Substack with tech podcaster Dwarkesh Patel, Burry emphasized that the key metric for AI sector investors is not revenue growth, hiring rates, or market size, but rather return on invested capital (ROIC).

ROIC measures how effectively a company turns its investments into profits.

"The ultimate metric is return on invested capital (ROIC), which used to be exceptionally high for software companies. Now that these firms are transitioning into capital-heavy hardware businesses, ROIC is bound to decrease, putting long-term pressure on their stock prices," Burry explained.

Burry argues that AI is driving companies such as Microsoft, Google, and Meta away from their historically lean software operations and into a future that demands heavy investments in data centers, semiconductors, and energy infrastructure.

Even if AI helps expand the market reach of these tech giants, Burry warns that declining ROIC could weigh on their stock valuations for years.

Burry’s Background and AI Bubble Warnings

Burry became a household name after his successful bet against the housing market was featured in "The Big Short." For years, he rarely made public statements, aside from the occasional cryptic post on social media.

That changed late last year when he closed his hedge fund to new investors and began publishing financial commentary on Substack.

Recently, Burry has drawn parallels between the current AI enthusiasm and the dot-com bubble of the late 1990s, even describing OpenAI as the "Netscape of our era." Netscape's IPO in 1995 sparked the dot-com frenzy, which ended in a dramatic crash five years later.

According to regulatory filings from September, Burry's firm, Scion Asset Management, has taken significant short positions against Nvidia and Palantir Technologies—two prominent players in the AI space.

AI Investments and Profitability Concerns

Leading AI companies—including OpenAI, Anthropic, Google, and Meta—are pouring substantial resources into building the infrastructure needed for their data- and energy-hungry AI products. Both debt and equity investors are supporting these efforts.

However, these companies have yet to demonstrate meaningful profits from their AI ventures, prompting Burry and others to caution that the AI sector may be in the midst of a speculative bubble.

"Eventually, the massive investments in AI infrastructure must yield returns that exceed their costs, or else there is no real economic value being created," Burry wrote on Substack.