Michael Burry’s Burry AI bubble warning has sharpened considerably this week, with the investor drawing explicit parallels between the current enthusiasm for artificial intelligence and the accounting sleight-of-hand he identified before both the dot-com crash and the 2007 housing collapse. Writing on Substack, Burry argued that the seemingly unassailable positivity around AI reminds him of those earlier manias, and warned that the consequences could prove far more devastating than Enron’s collapse.
Circular revenues and a bubble on a clock
The exchange began when a subscriber told Burry in a chat thread that it felt like ‘we are witnessing a massive coordinated effort to prop up the narrative.’ Burry’s reply was pointed: ‘That is how it felt in May of 2007 when the Fed Chair was saying there would be no contagion or a couple years earlier when he said there is no such thing as a housing bubble.’
He added a third reference: ‘Or in 1Q2000 when every tech was showing crazy strong revenue growth selling to each other without the demand to back it up.’ That comparison appears to refer to internet startups that inflated growth figures during the dot-com boom by transacting with one another rather than with genuine end customers. Burry argued the dynamic is repeating, with a crucial difference in scale. ‘Need to look to private companies,’ he wrote. ‘The dot coms never went public this round. And they are 100-1000 times the valuation. 5000 unicorns.’
Ben Bernanke, the former Federal Reserve chair, famously dismissed concerns of a housing bubble in late 2005 and said in early 2007 that problems in the subprime mortgage market were unlikely to affect the broader markets or the wider economy. Burry, by contrast, diagnosed the bubble and made an enormous contrarian wager against it, a story chronicled in the book and film The Big Short.
In Substack comments this week, Burry described Big Tech companies as ‘taking on epic risks and liabilities that they never had to take on before,’ with ‘orders of magnitude more capital flowing to the buildout than value of the use case.’ He warned that maintenance capital expenditure ‘is going to shock investors’ and that returns on capital are poised to ‘crater,’ hurting future investment. Debt, he continued, is making up a growing share of that capital, which ‘puts the bubble on a clock.’
The Burry AI bubble warning: depreciation, off-balance-sheet risk and $635bn in redirected capex
The structural mechanics Burry describes go beyond simple overvaluation. He has called out AI companies for dragging out depreciation schedules to flatter reported earnings, using off-balance-sheet structures to hide risk and leverage, and striking what he characterises as circular financing deals. ‘This is a concentrated effort to inject capital into the AI ecosystem that literally comes back to these companies as revenue,’ Burry wrote in a post. ‘Wall Street and the markets then judge the participants on their amazing revenue growth.’
The depreciation dimension carries a specific number. According to a Business Insider Finance post, Burry estimated that Big Tech will understate depreciation by $176 billion between 2026 and 2028, inflating reported profits in the process. That figure gives the accounting concern a precise dimension that his broader warnings about narrative management do not.
The scale of capital being committed to AI infrastructure reinforces why Burry believes the stakes are so high. Big Tech companies have redirected $635 billion into AI capital expenditure this year alone, money that was previously deployed in stock buybacks, according to AOL. That reallocation has materially changed the risk profile of balance sheets that investors had, until recently, treated as near-impregnable.
Burry has also announced short bets against Nvidia and Palantir, two of the sector’s most prominent names, placing concrete trades behind what could otherwise be read as commentary. He has been warning about the AI boom and detailing short positions for many months, yet the major US stock indices have largely ignored those concerns and moved to record highs.
An Enron comparison and a 2028 base case
The Enron parallel is the one Burry pressed hardest on in a post this week, after recommending his followers read a classic account of that company’s collapse. ‘This is so much bigger than one company, and orders of magnitude more dangerous to the economy and investors than Enron,’ he wrote. Enron famously used aggressive accounting to bolster reported profits and special-purpose entities to keep large debts off its balance sheet, manufacture income, and inflate its stock price. Burry’s argument is that analogous structures now operate at a scale that dwarfs a single corporate failure.
His stated timeline is specific: ‘My base case is 2028. That is when I think compute becomes too much. History says markets catch on well before that sort of turn.’ The investor pivoted from running a hedge fund to writing about his personal portfolio on Substack late last year, and that platform has become the primary venue for concerns he is now pressing with renewed urgency.