BREAKING: Renowned investor Michael Burry, famed for his role in “The Big Short,” has issued a stark warning that the rise of artificial intelligence (AI) is transforming Big Tech into a less profitable industry. In a fresh analysis on Substack, Burry argues that the return on invested capital (ROIC) for tech giants is declining, signaling potential trouble ahead.
Just announced, Burry’s insights emphasize that the shift towards AI is making companies like Microsoft, Google, and Meta move away from their historically asset-light software models. Instead, they are becoming more capital-intensive, investing heavily in data centers and advanced hardware. This shift is expected to weigh down profit margins and stock prices for years to come.
“While AI may expand the total addressable market for these companies, the falling ROIC could pressure share values significantly,” Burry stated in his post. He highlights that the most critical metric to watch isn’t revenue growth or market size, but rather how effectively these companies convert investments into profits.
Burry’s hedge fund, Scion Asset Management, has reportedly made large bets against AI leaders like Nvidia and Palantir Technologies, as evidenced by a regulatory filing released in September 2023. His skepticism mirrors concerns that the ongoing AI boom may echo the dot-com bubble of the late 1990s, with Burry likening OpenAI to the “Netscape of our time.”
In his Substack analysis, he warned, “At some point, this spending on the AI buildout must yield returns exceeding the costs, or there will be no economic value added.” Burry’s cautionary tone signals that many AI companies could face bankruptcy if they fail to deliver profitable returns, leading to a potential economic downturn reminiscent of the 2000 dot-com crash.
The stakes are high as major tech firms ramp up their investments in AI infrastructure. These companies are pouring billions into developing energy-intensive AI technologies, with some experts echoing Burry’s alarm about a speculative bubble ready to burst.
As the situation unfolds, investors and tech industry watchers are advised to monitor these developments closely. Burry’s insights are a stark reminder that the rapid advancement of AI might not guarantee the financial windfall many anticipate.
Stay tuned for updates as this story develops.
