On Monday local time, Michael Burry, the investor famous for the movie The Big Short, once again warned that the Nasdaq 100 Index is heading for a sharp reversal after a “parabolic” surge. He believes this rally has pushed tech stock valuations to unsustainably high levels. Burry is among many market observers who have expressed concerns about the stock market rally driven by the surge in AI spending by Google (GOOGL), Amazon (AMZN), and other major tech companies.
Burry posted that the current market conditions resemble the peak just before the dot-com bubble burst. He specifically highlighted the sharp rise in chip stocks, noting that the Philadelphia Stock Exchange Semiconductor Index has surged nearly 70% since the end of March. According to his estimates, the Nasdaq 100’s price-to-earnings ratio stands at 43, far above the implied level of around 30, because “Wall Street may be overestimating earnings by more than 50% for our fastest-growing, highest-valued companies.” “We are witnessing history. That is not a good thing for the stock market,” Burry said, comparing it to “the scene just minutes before a horrific car crash.”
Earlier on Sunday, Burry wrote that as the AI frenzy and momentum trading continue to push tech stock valuations higher, investors should now “reject greed.” He wrote: “For most people, the simpler approach is to reduce stock exposure, especially to tech stocks. For stocks that have already experienced parabolic rises, nearly completely pare back positions.” He stated that even if there appears to be more upside, those fortunate enough to have ridden this parabolic rally are betting they can jump off at or near the peak if they don’t sell. “History tells us that whether the party lasts another week, a month, three months, or a year, the outcome will be significantly lower prices,” Burry said. “We are entering that kind of thin air—so extreme that the consequences will be unavoidable, no matter where you hide.”
Over the past few months, Burry has repeatedly warned that the current frenzy over AI in the U.S. stock market increasingly resembles the final stages of the dot-com bubble. Last week, he compared the recent trajectory of the Philadelphia Semiconductor Index to the upward path just before the tech stock crash in March 2000, stating that the current market environment “looks exactly like the final months of the 1999–2000 dot-com bubble.” Burry revealed that he currently holds “a significant leveraged short position in a basket of companies” that he believes are “suppressed and cheap,” though he did not provide specific details. He also plans to reduce holdings in companies that do not meet his “strictest valuation requirements.” However, he advises against shorting stocks, as the cost of put options and the risk of losses due to poor timing are high. He said that for most people, the simpler approach is to reduce overall stock exposure, particularly in the tech sector.
