The 'Big Short' Burry Bottoms "Forgotten Assets", Warns US Stocks Are Reenacting the Denouement of the 2000 Bubble

Michael Burry, who became famous for accurately predicting the 2008 subprime crisis, published an article on his Substack this week, systematically comparing the current AI craze with the 1999 internet bubble and concluded: it is an asset bubble with no exceptions.

"History is not a perfect guide, but I see too many technical and fundamental indicators pointing to the same conclusion," Burry wrote. "The market in 1999 went to places it had never been before, and it can again. It's already there on several indicators."

87% of venture capital flows into AI, high-yield bond market also raises alarm

Burry cited the latest research from Torsten Slok, an economist at Apollo Global Management, pointing out that 87% of venture capital funds have flowed into the AI field this year, while in 1999, venture capital absorbed by internet companies accounted for less than 40%. At the same time, the current proportion of AI-related junk bond issuances is comparable to the proportion of technology, media, and telecommunications industries in the high-yield bond market in 2000.

"Today's proportion of AI-related high-yield bonds at 38% is not far off from the 40% to 50% at the time, which debunks the notion that 'today's AI debt is healthier and the companies behind it are more profitable,'" Burry wrote. "This is an asset bubble, simple and clear."

He also refuted the common defense that "this time is different from the internet bubble because most of the companies invested in today are profitable" - "We should remember that venture capital's bet on unprofitable companies is unprecedented in history, far exceeding 1999. It's just that these companies have not gone public yet."

Whether corporate demand can be realized is the biggest question mark

Burry is highly skeptical about the prospects for corporate demand for AI. He points out that several recent studies have found that the practical utility of AI for businesses is "extremely limited," and "a large number of AI projects have been abandoned." He asks: will corporate demand for AI explode in the next few years, or will it cool down because of "economic recession, war, business cycles, and more rational annual budget reviews after the AI craze subsides?"

The consumer end is also pessimistic to him. Consumers can already use large language models like ChatGPT to do almost everything they want for almost free, which makes them "not show any willingness to become an important source of income for AI products."

"It's like the scene a few minutes before the car accident"

Earlier this month, Burry also issued a more straightforward warning: "The market has jumped the shark. The end of this is near. All of this is like the scene a few minutes before a bloody car accident."

At the same time, Burry revealed that he is buying value stocks "away from the main stage" such as Adobe, PayPal, and Lululemon. "In 1999, the same situation occurred - the old economy and international assets were abandoned, and funds rushed into a uniform American bubble target," he wrote.