Michael Burry and Wall Street analysts warn AI bubble may burst as hyperscalers pile on debt

Jefferies' Christopher Wood warns Microsoft, Meta, and Alphabet AI spending may backfire

Jefferies strategist Chris Wood has warned that Wall Street's hyperscalers risk massive capital destruction from excessive AI spending, arguing markets may soon push back against rising debt-funded investments. He also flagged geopolitical risks and drew attention to growing concerns that AI valuations could become detached from economic fundamentals. Amid the seesaw market frenzy over artificial intelligence, Jefferies' Global Head of Equity Strategy, Chris Wood, cautioned that the stock market may soon begin to push back against the significant spending by Wall Street's hyperscalers, which he predicts will be "massive capital destruction". In his latest 'Greed & Fear' report, Wood highlighted that the four major US hyperscalers, including Microsoft, Facebook-parent Meta, Amazon and Google-parent Alphabet, have issued bonds worth $144 billion so far this year, compared with $83 billion in the entire 2025. The shares of these four hyperscalers, meanwhile, have rallied up to 180% since the beginning of 2023, outperforming the S&P 500 index by 44%. 'Malinvestment' by hyperscalers Wood noted that the shares of these hyperscalers have, however, declined nearly 9% since late May and have underperformed the S&P 500 index by more than 10% from the relative high in early May. He highlighted that the cycle of AI frenzy is most likely to end not because the hyperscalers suddenly rein in their spending but because markets start to push back against that spending. "And that spending is not just cash but also, increasingly, borrowed money," he added. "Meanwhile, Greed & Fear's longstanding prediction is massive capital destruction, or what Austrian economists like to call "malinvestment", for the hyperscalers, or at least for most of them," Wood said in the note. Notably, more than $2 trillion was wiped off the total market value of the 'Magnificent 7' stocks last month as investors weighed the increasing spending of these tech giants on AI infrastructure, raising worries over a possible AI bubble. Also read: No longer magnificent? How Apple, Microsoft and other Mag 7 stocks are crumbling under AI pressure Scary implications of Ukraine war developments The Jefferies analyst noted that the past quarter ended with investors questioning the durability of the Iran-US interim peace agreement, with remarkably little attention being paid to what is happening in the Ukraine conflict. "It is increasingly clear that it is not just Ukraine which is at war with Russia but also NATO. The implications of this are rather scary to Greed & Fear. But markets do not care for now. All Greed & Fear can say is that it still makes sense to own some energy stocks as a hedge, and that at some point, geopolitics will matter for investors," he further said. Earlier in June, Wood warned that the AI trade will eventually be broken not by a sudden collapse in demand for chips but by market-wide realisation that hyperscalers and leading AI labs cannot earn an adequate return on the vast capex they are undertaking. He sees concerns over "malinvestment" as the specific risk that will finally trigger the end, or at least a painful pause, in the AI boom. Also read: Chris Wood's big warning! The specific risk that will finally trigger the end of AI trade Wood has joined a long list of analysts sounding the alarm over possible overspending by the hyperscalers. Michael Burry, popular for correctly predicting the market crash of 2008, has been warning against the rising debt levels as a result of the massive spending. Earlier this year, Burry wrote in a Substack post that he sees many indicators, both technical and fundamental, lining up for the same conclusion as the dot-com crash. "1999 went where no market had gone before, and I would say so can this one...It is already there on several indicators," he said, arguing that massive venture capital flows, rising AI debt issuance, and extreme market optimism are creating conditions where valuations may detach from economic reality. Burry recently announced that he has placed bets against Tesla, Caterpillar, Nvidia, Applied Materials and more, in what marks his latest series of bearish bets. He also bet against Palantir and other companies. Also read: AI bubble or boom? Why Warren Buffett called Big Short fame Michael Burry 'Cassandra' (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

Michael Burry has AI valuation concerns

Michael Burry has been posting "The end is nigh" on his Substack. He quoted the Joker from Tim Burton's Batman: "Dancing with the devil in the pale moonlight." He called AI enthusiasm "mass addiction" and predicted it "may die a death by a thousand cuts." He shorted Micron at $1,051.87 on July 1 after the stock had already climbed nearly 700% over the prior year. On July 10, he published something more specific on Substack that goes beyond valuation concerns. It's an attack on the technical foundation on which the whole AI industry is built. Michael Burry says AI started on the wrong path and is stuck there The argument in the post centers on what Burry calls a "bad start." His case is that AI development went language-first when it should have gone reasoning-first, and the industry has been paying for that choice ever since without fully admitting it. He builds the argument around something called Ballard's Test, a philosophical case involving a figure named Melville Ballard who achieved profound reasoning before ever acquiring language. Burry uses it to make a specific point: real understanding doesn't require language. Language is the output of intelligence, not the source of it. "We have mistaken the output of artificial intelligence (language) for the engine of it (reason)," Burry wrote on Substack. His reading of the AI industry is that it spotted language as a tractable problem and optimized for it, not because language led to general intelligence but because it was scalable and fundable. The models got better at generating text. Investors rewarded that. The industry kept going. And somewhere along the way, the difference between producing language and actually reasoning got lost. What Burry means by the AI "parameter trap" The "parameter trap" is what happens when an industry decides that bigger is the same as better. More parameters, more compute, more data, bigger models. Each step up produces visible improvements in benchmark scores and demo performance. But Burry's argument is that scaling language doesn't solve the underlying reasoning problem. It just makes the simulation more convincing. That has real financial consequences. The companies spending hundreds of billions on AI infrastructure are betting that scaling gets you there. Hyperscaler AI spending could hit $725 billion in 2026, according to TheStreet. The Philadelphia Semiconductor Index is up 88% this year. Nvidia's market cap is roughly $5.45 trillion with a trailing P/E of 43. All of that is built on the assumption that the current scaling path works. Burry is saying it might not. If the industry is spending at this scale to improve something that isn't the actual target, the economics of the whole trade look different. Burry's broader bets against the AI trade right now The Substack post didn't come out of nowhere. Burry has been building short positions against the AI trade for months. He's disclosed shorts on Nvidia, Tesla, Micron, Applied Materials, Caterpillar, and the iShares Semiconductor ETF. The Micron short he disclosed on July 1 came after the stock had already run nearly 700%, as TheStreet reported. His analysis of semiconductor valuations pointed to the Philadelphia Semiconductor Index trading near peak levels within its 15-year forward P/E band. His argument is that chip stocks are rising because hyperscalers are spending heavily on AI, and hyperscalers are spending heavily because chip stocks keep rising. The feedback loop looks like demand but is partly just reflexivity. The Magnificent 7 lost more than $2.2 trillion in market value in June 2026, according to CNBC. Burry has been short through that decline and is adding to the argument rather than easing off it. Why Burry's technical critique is harder to dismiss than valuation arguments Most AI bears make valuation arguments. Stocks are expensive, spending is high, returns haven't materialized yet. Those arguments are real but they're also familiar, and the market has heard them before without much consequence. Burry's July 10 post is different because it's attacking the architecture, not the price tag. He's saying the current generation of AI might be getting better at something that isn't actually the goal. A system that produces more convincing language output isn't necessarily getting closer to genuine reasoning. And if that's true, the scaling thesis breaks down in a more fundamental way than valuation critics have described. He predicted the AI story "may die a death by a thousand cuts." That phrasing is deliberate. He's not calling for a single crash moment. He's describing a gradual erosion of confidence as the gap between what AI can do and what investors assumed it could do becomes harder to paper over with bigger models and better benchmarks. What Burry's warning means for investors tracking AI stocks Burry has been early before. He called the market a sell in August 2023 and it subsequently rose 66%. He's been bearish on Nvidia for over a year while the stock kept climbing. Being right about a structural argument doesn't mean the market agrees with you on any particular timeline. What's different about the July 10 post is the specificity. He's not just saying AI is expensive. He's pointing to a specific technical decision made at the beginning of the current AI wave and arguing it set the whole industry on the wrong track. That's a harder thing for the bulls to wave away with an earnings beat. For investors holding AI infrastructure stocks, chip names, or any company whose valuation rests on the assumption that current-generation LLMs are on the path to genuine intelligence, Burry's argument is worth reading carefully. He might be wrong. He's been wrong before. But the last time he made a structural argument this specific about a major market, he turned out to be right. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc. This story was originally published July 12, 2026 at 11:47 AM.

Michael Burry issues warning about Elon Musk's AI jobs prediction

Tesla CEO (TSLA) Elon Musk is back again, pushing one of his boldest claims about the AI boom, in which the technology might eventually make work optional. Musk first made that prediction at the U.S.-Saudi Investment Forum. Sitting alongside Nvidia CEO Jensen Huang, Musk told the crowd, "My prediction is that work will be optional." Now Musk is doubling down. According to Business Insider, citing a back-and-forth on X, Musk said AI and robots could create enough abundance to support a "universal high income." Michael Burry quickly pushed back, though, suggesting the road to that future could be far more chaotic than Musk's vision implies. For perspective, "The Big Short" investor Michael Burry, famous for calling the 2008 housing crash, has effectively turned his old bubble playbook on the AI trade. The pushback began with Burry arguing that AI spending has gone too far, likening Nvidia to Cisco in the dot-com era, and later filings revealed bearish bets on Nvidia and Palantir, according to Yahoo Finance. Most recently, The Wall Street Journal said Burry called the new AI shorts the "beginning of the end", while TheStreet reported he shorted memory giant Micron after citing "fear of missing out" and "greater fool theory" in the rally. Nevertheless, the key tension here is whether AI becomes the engine of a richer future or first delivers the kind of economic shock markets are not fully pricing in. Musk's AI promise meets Burry's transition warning Elon Musk went beyond the debate over AI as a productivity tool and described a scenario in which labor itself becomes less central to survival. Musk wrote on his X account that,"AI+Robots will be able to do everything, resulting in universal high income. Work will be optional." Michael Burry's reply was blunt: "False. There will be revolution first." Musk doubled down on the end state, in which AI and robotics could drive costs down so sharply that food, housing, utilities, healthcare, and other essentials become cheaper. In that version of the future, government support moves beyond basic income toward a broader, more robust safety net. Burry is challenging the road to get there. He argues that the transition could potentially break before the promised abundance arrives. If millions of workers are displaced faster than companies, governments, and communities can absorb, the result might be anger before comfort and instability before leisure. It's important to note that Burry has also said he is shorting Tesla, according to Yahoo Finance, while describing Musk as an American treasure but an aggressively incentivized futurist. Moreover, Burry is not the only one sounding the alarm about the transition. According to Yahoo Finance, billionaire and legendary investor Ray Dalio warned that AI could deepen wealth inequality and heighten the risk of internal strife if the gains are not redistributed. On the flipside, according to Fortune reporting, JPMorgan CEO Jamie Dimon offered the more optimistic version, saying AI could eventually shorten the workweek and improve lives. He warned, though, that companies and governments might need to effectively reskill workers quickly, or the labor-market shock could arrive first. Marc Piasecki/Getty Images The evidence undercuts the 'AI replaces everyone' panic * According to the ILO-NASK 2025 index, about one in four jobs worldwide could be transformed by GenAI rather than automatically eliminated. * According to PwC's 2026 AI Jobs Barometer, AI-skilled workers now command a 62% wage premium, indicating rising demand for human-AI skills. * According to BCG, 50% to 55% of U.S. jobs may be reshaped by AI, with many workers staying in similar roles. * According to the World Economic Forum, AI-era disruption could create 170 million jobs and displace 92 million, a net gain of 78 million by 2030. * According to Microsoft, 78% of leaders are considering AI-specific hiring, including AI trainers, agent specialists, and ROI analysts. * According to Forbes, Ford rehired 350 veteran engineers after AI tools fell short in producing high-quality work. Source line: ILO-NASK, PwC, BCG, World Economic Forum, Microsoft, Fortune/Bloomberg, and Forbes/Bloomberg. The AI bubble warning is really a funding-chain warning The big AI-bubble risk at this point has everything to do with whether the debt-funded buildout can earn enough cash before financing conditions tighten. According to MarketWatch, AI-linked corporate bonds sold off this week as Amazon moved to borrow another $25 billion, with Microsoft, Alphabet, Meta, Oracle, and Nvidia together holding more than $460 billion in outstanding debt and nearly $100 billion in issuance planned for 2026 alone. Moreover, Barron's separately reported that $236 billion of AI-related debt had been raised globally through May, about four times the 2025 level. OpenAI in particular becomes a symbolic pressure point. According to Reuters, OpenAI is targeting nearly $600 billion in compute spending through 2030, while popular tech critic Ed Zitron, citing leaked financials, said OpenAI posted $13.07 billion in 2025 revenue against $34 billion in costs and expenses, with losses piling up sharply. At the same time, Oracle is taking the AI circular financing debate to the next level by ramping up AI capex toward $95 billion in fiscal 2027 and planning nearly $40 billion in debt and equity financing, according to Reuters. Reuters has also noted private-credit AI loans may have nearly doubled, while Morgan Stanley estimates private credit could fund over half of the $1.5 trillion data-center buildout through 2028. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc. This story was originally published July 8, 2026 at 2:47 PM.

AI bubble fears mount as Zuckerberg admits agent delays and Burry shorts sector By Investing.com

Investing.com - A convergence of bearish signals is rattling the AI trade ahead of Wednesday's open, with Meta CEO Mark Zuckerberg privately conceding that AI agent development is moving slower than his company expected, Michael Burry placing short positions across multiple AI-infrastructure stocks, and pre-market data showing NVIDIA (NASDAQ:NVDA) slipping 1.42% to $194.14, Meta (NASDAQ:META) off 1.57% to $605.93, and Palantir (NASDAQ:PLTR) leading declines at 2.88% lower. NVIDIA, as the primary supplier of the GPUs powering the entire AI buildout, sits at the center of this credibility test. Its pre-market slide puts the stock roughly 17% below its 52-week high of $236.54, and any sustained erosion in enterprise AI spending commitments would hit chip demand before it reaches any other part of the supply chain. At an internal town hall reported by Reuters on July 2, Zuckerberg acknowledged that AI agents "haven't accelerated the way leadership expected," a remarkable admission from the executive who staked Meta's corporate restructuring on rapid AI deployment. The candor aligns with a broader pattern of disillusionment. A survey cited by UBS, via Intellectia.ai, found that approximately 60% of businesses are pulling back on AI spending, raising fundamental questions about whether the trillion-dollar infrastructure buildout is generating returns for ordinary enterprises or primarily enriching cloud providers and chipmakers. The skepticism has reached Wall Street's most celebrated contrarian. Michael Burry, who correctly called the 2008 housing collapse, has reportedly taken short positions across several AI-infrastructure names (specific tickers not yet publicly disclosed), citing valuation concerns he likens to the late stages of the dot-com boom, according to 247wallst.com. Barchart analysis published July 7 draws the parallel explicitly, noting that Cisco, the defining infrastructure stock of that era, ultimately lost more than 80% of its value after the bubble burst. Oracle (NYSE:ORCL) offers a present-day echo: the stock has shed nearly 40% over the past year and was pointing to further pre-market losses of 2.02% to $138.74 ahead of Wednesday's session. The competitive landscape is adding another layer of pressure. A new low-cost Chinese AI model is matching Anthropic and OpenAI on standard benchmark tests, Reuters reported on July 2, reprising the DeepSeek shock of early 2025 and renewing doubts about whether massive Western AI capital expenditure will translate into durable competitive advantages. If frontier-quality models can be replicated cheaply, the justification for spending at the scale Meta, Microsoft (NASDAQ:MSFT), and others have committed to becomes harder to sustain. Microsoft, already down more than 22% over the past year, was trading pre-market at a further 1.37% discount. The reporter's original thesis finds traction in the Alibaba episode as well. On July 3, Reuters reported that Alibaba banned employees from using Anthropic's Claude coding assistant, citing alleged "backdoor risks." The episode crystallizes a concern that runs beneath the AI hype cycle: that the primary use case for large-scale AI infrastructure may be data collection and surveillance rather than consumer or small-business productivity. Mark Douglas, CEO of MNTN, told Fortune on July 2 that U.S. data center capacity "is not going to age well," giving it roughly two years before obsolescence pressures mount. Palantir (NASDAQ:PLTR), whose government-surveillance roots predate the current AI wave and whose business model depends heavily on defense and intelligence contracts, saw the steepest pre-market percentage decline in the group at 2.88%, suggesting investors are reassessing how much of the sector's value proposition rests on public-sector, not commercial, demand. The forward-looking picture hinges on several pressure points. Earnings calls from Microsoft, Meta, and Alphabet in the coming weeks will face unusually direct scrutiny over whether AI capital expenditure is translating into measurable revenue uplift or simply inflating cost bases. The Federal Reserve's next rate decision, flagged as a near-term catalyst in Barchart's July 7 coverage, matters disproportionately for high-multiple AI stocks: any signal of prolonged restrictive policy would steepen the discount applied to earnings that remain years out. Burry's short positions provide a live market referendum on whether the dot-com analogy holds. If AI-infrastructure names continue underperforming while Chinese open-source models close the capability gap, the pressure on Western hyperscalers to justify their spending trajectories will intensify well before year-end. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Michael Burry warns AI stocks may be nearing a painful turn

It seems the 'Big Short' Michael Burry isn't easing up on his criticism of the AI trade anytime soon. The hedge fund investor who became famous for betting against the 2008 housing bubble has spent the past few weeks sharpening his attack on AI stocks, and his latest posts pushed that warning into even darker territory. In his string of scathing social-media posts, he paired sharp language with charts showing a widening gap between chip stocks and the companies shelling out billions to build AI infrastructure. Over the past few months, Burry has taken AI stocks to the cleaners, building his case around stretched valuations, crowded trades, and a growing divide between AI chip winners and the hyperscalers paying for the buildout. The big concern is whether investors may have priced the winners as if the spending boom can keep compounding without disappointment. Why Burry says the AI trade is nearing trouble Burry's latest AI troll was apocalyptic, warning of what could be the beginning of a grueling stock market crash. : According to Seeking Alpha, Burry posted, "The end is nigh," then added, "Dancing with the devil in the pale moon light," a reference to Jack Nicholson's Joker line from Tim Burton's Batman. Burry wrote that "the AI narrative is nothing more than mass addiction," and warned that "the AI narrative may die a death by a thousand cuts, and I have only seen a few dozen so far." His charts pointed to two concerns. AI semiconductor stocks have sharply outperformed the hyperscale cloud companies funding the infrastructure buildout, as well as broader AI beneficiaries. Another chart showed the Philadelphia Semiconductor Index trading near the top of its 15-year valuation range on forward P/E. Burry argues that chip stocks may have raced ahead of the fundamentals supporting the AI boom. For perspective, according to Reuters, the chip sell-off hit the tape hard. The Philadelphia semiconductor index dropped 6.3% on July 1 and another 5.5% on July 2, while the S&P 500 tanked 0.22% and the Nasdaq dropped 0.66% and 0.80%, respectively. Why Michael Burry is turning harder against AI stocks Over the past few months, Burry's AI warning has shifted from a single-name short to a broader attack on the trade's poster children. It all goes back to early November last year, when his then-hedge fund, Scion Asset Management, disclosed put options on 1 million Nvidia shares and 5 million Palantir shares, according to Business Insider, betting against two of the biggest names in the AI space with positions valued at $187 million and $912 million, respectively. Since then, Burry has widened his bet. According to Business Insider, he recently disclosed bearish positions via put options on some of the biggest names in tech, including Tesla, Nvidia, Caterpillar, Applied Materials, and the iShares Semiconductor ETF. Memory giant Micron recently became the latest target of this scathing narrative. As covered by TheStreet's top tech reporter, Aditya Raghunath, Burry disclosed on July 1 that he had shorted Micron (MU) shares at $1,051.87, according to a Substack post. The bet followed a huge rally, with the stock up nearly 700% over the past year and 241% in 2026. He framed the move as a bet against a herd-mentality rally, blaming "fear of missing out, the greater fool theory, and public commitment bias". Burry's broader argument is that the AI trade is effectively feeding on itself. Chip stocks jump primarily because big tech giants spend heavily on AI. Equipment makers rise because chip companies are building more capacity. Investors then treat every new spending plan as proof that demand will keep growing. After Samsung and SK Hynix announced a huge chip hub in Korea, The Wall Street Journal quoted Burry saying, "I see that as the beginning of the end." He argues that investors might be paying too much, too soon, before it is clear whether all this spending will deliver strong returns. Burry sees AI spending, chip demand, and momentum-driven valuations as one crowded trade that could fall hard if expectations disappoint. The insane numbers behind the AI trade * According to Reuters, Nvidia hit $5 trillion in market value on Oct. 29, 2025, after its shares climbed 12-fold since ChatGPT's 2022 launch. Essentially, one AI chipmaker became big enough to pull the whole market's mood with it. * According to Reuters, Microsoft, Alphabet, Amazon, and Meta together carried more than $10 trillion in market value and made up 17% of the S&P 500 in April. * According to Axios, Alphabet, Amazon, Meta, Microsoft, and Oracle raised $255.34 billion through debt and equity in 2026, while planning roughly $750 billion in AI data center spending by year-end. * According to the Financial Times, the Magnificent Seven lost over $2.2 trillion in market value in June 2026. * According to Business Insider, hyperscaler AI spending could reach $725 billion this year, while the Philadelphia Semiconductor Index is up 88%. * According to Yahoo Finance, BofA's Bubble Risk Indicator put the semiconductor sector at 0.91, flashing near-bubble risk. That does not mean a crash is guaranteed, but it shows how stretched the AI trade has become. Sources: Reuters, Financial Times, Axios, Yahoo Finance, and Business Insider. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc. This story was originally published July 6, 2026 at 7:07 AM.