Michael Burry Warns AI is Disrupting Big Tech

Michael Burry, known for his role in 'The Big Short' saga, has recently voiced his concerns over the trajectory of Big Tech companies, attributing this shift to artificial intelligence.

In a dialogue on Substack with technologist Dwarkesh Patel, Burry emphasized that return on invested capital (ROIC) is the crucial metric for AI investors — not traditional metrics like revenue or headcount.

Burry elucidated that ROIC serves as an index of how effectively businesses convert their investments into earnings. Formerly, tech firms excelled in this regard, yet the move to hardware-driven business necessitated by AI is anticipated to diminish ROIC, potentially affecting stock valuations.

Historically, giants such as Microsoft, Google, and Meta thrived with minimal asset investment models. However, according to Burry, AI advancements are driving these firms towards a necessity for capital-heavy infrastructure, marked by significant investments in data centers and processing power.

While AI might broaden the market reach for tech companies, Burry highlights a looming issue: diminishing ROIC could weigh on stock prices over time.

Gaining attention for his accurate prediction of the housing crisis in the 2000s, Burry compares the current AI fervor to the 1990s dot-com era, cautioning that the situation mirrors past bubbles, notably referencing OpenAI as the contemporary 'Netscape'.

His investment firm, Scion Asset Management, has taken sizable positions against prominent AI players like Nvidia and Palantir, underscoring Burry's skepticism about the profitability of AI ventures.

Burry observes that companies such as OpenAI, Anthropic, Google, and Meta are heavily investing in AI infrastructure, yet have not shown substantial financial returns, prompting fears of an AI market collapse.

Burry has suggested that this unchecked investment in AI must eventually yield returns greater than the initial expenditures, lest it create an unsustainable economic scenario.

Burry provocatively questioned whether we could see a financial downturn linked to AI, drawing attention to the potential for an economic crisis akin to past financial tremors.