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Michael Burry, the ‘Big Short’ investor, has laid out his concerns about the AI boom in a recent Substack debate.
Burry, who rose to fame after his contrarian bet against the mid-2000s housing bubble was chronicled in Michael Lewis’ book ‘The Big Short,’ and actor Christian Bale portrayed him in the movie adaptation, has been warning about the dangers of the AI bubble.
He recently took part in a written debate with Anthropic cofounder Jack Clark and podcaster Dwarkesh Patel, where he shared his concerns about the hyperscalers, including Microsoft and Alphabet, wasting huge sums on microchips and data centers that will quickly become obsolete.
Burry drew a parallel to a Baltimore department store briefly owned by Warren Buffett in the 1960s: Hochschild-Kohn.
“When the department store across the street put an escalator in, he had to, too,” Burry wrote. “In the end, neither benefited from that expensive project. No durable margin improvement or cost improvement, and both were in the same exact spot. That is how most AI implementation will play out.”
He also warned that the tech industry employment will “be lower, or not much higher, because I think we are headed for a very long downturn.”
## Escalator to Nowhere
Burry shot to fame after his contrarian bet against the mid-2000s housing bubble was chronicled in Michael Lewis’ book ‘The Big Short,’ and actor Christian Bale portrayed him in the movie adaptation.
He pivoted from running a hedge fund to writing on Substack late last year. Several of his early posts have taken aim at high-flying AI stocks, warning they’re overvalued and destined to tumble.
“I think the market is most wrong about the two poster children for AI: Nvidia and Palantir,” he told Clark and Patel.
The chipmaker and data-analysis specialist are “two of the luckiest companies” because their products were inadvertently well-suited to AI from the get-go, he added.
“Nvidia is the power-hungry, dirty solution holding the fort until the competition comes in with a completely different approach,” Burry wrote.
## Poster Children
Burry shared three things that have surprised him about the AI boom.
The first was that Google “fumbled it” and gave an opening to competitors with far less going for them,” he said. “Google playing catch-up to a startup in AI: that is mind-blowing.”
The second was that ChatGPT, OpenAI’s chatbot, “kicked off a multi-trillion-dollar infrastructure race.”
It’s like someone built a prototype robot and every business in the world started investing for a robot future,” he wrote.
The third was Nvidia’s continued dominance when he expected more power-efficient chips to have taken off by now.
Speaking about AI’s real-world impacts, Burry said that the value investor shared his concerns about the dangers of the AI bubble and the risks of investing in high-flying AI stocks.
