BREAKING: Renowned investor Michael Burry, famous for his role in “The Big Short,” has issued a stark warning about the future of Big Tech amid the AI boom. In a recent Substack post, Burry announced that the profitability of tech giants like Microsoft, Google, and Meta is at serious risk as AI transforms their business models.
Burry argues that the once lucrative, asset-light software models of these companies are being replaced by capital-intensive operations requiring substantial investments in data centers and hardware. He stated, “The measure to beat all measures is return on invested capital (ROIC), and ROIC was very high at these software companies. Now that they are becoming capital-intensive hardware companies, ROIC is sure to fall, and this will pressure shares in the long run.”
The investor pointed out that AI, while potentially expanding the market for Big Tech, could lead to a significant decline in ROIC, fundamentally altering the landscape for investors. As Burry noted, “At some point, this spending on the AI buildout has to have a return on investment higher than the cost of that investment, or there is just no economic value added.”
This urgent message comes as leading AI firms, including OpenAI and Anthropic, ramp up spending to develop the infrastructure necessary for their data-intensive applications. However, many of these firms are struggling to yield significant profits from their AI innovations. Burry’s hedge fund, Scion Asset Management, has already made substantial bets against Nvidia and Palantir Technologies, both of which are heavily invested in AI.
Adding to the urgency of his message, Burry likened the current AI surge to the late-1990s dot-com bubble, suggesting it could lead to a market crash. He stated, “Will it be the Panic of 2026? 2027? Does not have to be.” This comparison has raised alarms among investors who remember the fallout from the dot-com crash just over two decades ago.
Investors are feeling the pressure as they closely monitor the evolving situation. With Burry’s insights resonating strongly within financial circles, many are reconsidering their strategies in light of potential AI-related losses.
As the AI narrative continues to unfold, it remains crucial for stakeholders to focus on ROIC as a vital metric of success in this rapidly changing environment. Burry’s forecast is a call to action for investors to prepare for a potential downturn, making it imperative to stay informed on these developments.
Stay tuned for more updates on this developing story as the implications for Big Tech and the broader market continue to evolve.
