Prominent investor Michael Burry warns AI infrastructure capex may face correction sooner than expected and shifts portfolio to put options.
Michael Burry, the investor who famously bet against the US housing market before the 2008 financial crisis, has accelerated his timeline for a potential artificial intelligence market correction. Citing fresh research on the sustainability of AI spending, Burry has shifted his bearish bets from conventional short positions to put options, a move that signals he now expects pressure on AI stocks sooner than his previous forecast.
"Fundamentally, I am moving timelines up. As such, I want more leverage in my short positions. Better timelines make leverage more palatable," Burry wrote in his Monday investment newsletter, according to CNBC. In August, he had indicated that an AI-driven market correction could begin around 2028. His latest assessment brings that timeline forward following research examining the relationship between AI revenues and the enormous capital spending undertaken by major technology companies.
Put options allow Burry to seek gains from stock declines while committing less capital upfront, particularly if prices fall sharply within a short timeframe. The shift reflects his belief that AI valuations may face reckoning earlier than previously expected.
Burry cited research from Ares Management arguing that the AI investment cycle could face pressure if AI-related revenues fail to justify hyperscalers' spending scale. A single period of disappointing AI revenue could prompt technology companies to reconsider capital allocation, the research suggested. If boards conclude that another investment opportunity offers better returns than AI infrastructure, capital spending could be redirected, potentially pressuring the broader AI investment cycle.
Burry has also argued that the US administration has limited room to allow the AI investment cycle to weaken given its growing importance to the broader economy. In a recent Substack discussion, he questioned what policymakers in Washington could do if the AI trade began to unwind.
The debate over AI sustainability adds to investor and executive concerns about rapid AI development. Anthropic CEO Dario Amodei recently called for AI companies to slow the pace of advances in model capabilities, citing concerns about potential misuse and the growing capabilities of AI agents.
Burry has further warned that the broader US stock market could be approaching a major peak, comparing the current environment to periods of extreme market optimism. He has suggested a sharp correction similar to the 1987 crash cannot be ruled out—the Dow Jones Industrial Average plunged about 23% on October 19, 1987, in one of Wall Street's most severe single-day declines, eventually contributing to the introduction of market-wide circuit breakers.
Burry has drawn parallels between current market conditions and the dot-com era, pointing to heavy venture-capital investment, rising debt linked to AI infrastructure, and elevated investor optimism. His bearish outlook carries particular weight given his successful housing-market bet, later portrayed in the 2015 film *The Big Short*.
For now, the AI trade remains a key driver of US equity markets, leaving investors focused on whether the capital being deployed into AI infrastructure can translate into revenues and profits at a pace that supports current valuations.