Michael Burry’s AI Bubble Warning: Are Google and Microsoft Wasting Trillions?

Top US investor warns Google and Microsoft; says trillions are being wasted on AI

The man who famously foresaw the 2008 housing market collapse is back with a chilling prediction, and this time, it’s aimed squarely at Silicon Valley. Michael Burry, the investor immortalized in “The Big Short,” has issued a stark warning: the current frenzy around artificial intelligence is a dangerous AI bubble that could see trillions of dollars vanish into thin air.

Burry’s target? Tech titans like Google and Microsoft, who are engaged in a high-stakes arms race to build the most powerful AI infrastructure on the planet. But according to Burry, this race is less about innovation and more about a costly, potentially catastrophic, misallocation of capital .

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The Big Short Investor Sounds the Alarm

Michael Burry isn’t known for his subtlety. His latest commentary, shared through his Substack and various interviews, paints a dire picture of the current state of Big Tech. He argues that the massive spending on AI data centers and the associated energy costs is fundamentally transforming historically asset-light software companies into capital-intensive behemoths with questionable returns .

“AI is turning Big Tech into a worse business,” Burry stated bluntly, emphasizing that return on invested capital (ROIC) is the ultimate metric that matters—and one he believes is being ignored in the current hype cycle .

Why Burry Believes It’s an AI Bubble

Burry’s core argument hinges on a simple but powerful concept: the lack of a clear, sustainable path to monetization. While companies tout the revolutionary potential of their AI tools, Burry sees a disconnect between the astronomical investments and the real-world economic utility they provide.

He likens the current AI infrastructure build-out to a scenario where every company feels compelled to buy a new, expensive piece of equipment just because its competitors are, even if they don’t have a clear use for it. This creates a self-perpetuating cycle of spending that inflates asset values without a corresponding increase in genuine productivity or profit.

His analysis suggests that Big Tech may be collectively understating depreciation on these massive AI investments by as much as $176 billion between 2026 and 2028, which artificially inflates their reported profits and masks the true financial burden [[1], [22]].

Google and Microsoft at the Epicenter

While the AI race involves many players, Burry has singled out Google and Microsoft as prime examples of this dangerous trend. Both companies are pouring hundreds of billions of dollars into building out their cloud and AI capabilities, racing to outdo each other in a battle for dominance.

This intense competition, Burry warns, is leading to a situation where the infrastructure itself becomes the product, rather than a means to deliver valuable services. The focus shifts from creating useful AI applications for the real economy to simply having the biggest, fastest data centers. This, he argues, is a recipe for wasted capital on a historic scale .

He’s also pointed to companies like Nvidia as “poster children” of the AI hype, criticizing their solutions as “power hungry” and unsustainable in the long run .

The Hidden Costs of the AI Race

The consequences of this potential AI bubble extend far beyond corporate balance sheets. Burry has expressed serious concerns about the impact on employment and the broader economy.

  • Stagnant Tech Employment: If the AI investments fail to generate the expected returns, companies will likely freeze hiring or even lay off workers, leading to a period of stagnant or declining employment in the tech sector.
  • Energy Crisis: The power demands of these sprawling AI data centers are immense, contributing to a significant strain on the global energy grid and raising environmental concerns.
  • Market Volatility: A sudden realization that the AI emperor has no clothes could trigger a massive sell-off in tech stocks, causing widespread market volatility and potentially a broader economic downturn, reminiscent of the dot-com bust .

What This Means for the Future of Tech

Burry’s warning is a call for a reality check. It’s a reminder that not all technological advancement is automatically profitable or beneficial. For investors, it’s a cautionary tale about the dangers of following the herd into a hyped-up market without a critical eye on the underlying fundamentals.

For the tech industry itself, it’s a challenge to move beyond the infrastructure arms race and focus on delivering tangible value. The question isn’t whether AI is powerful—it’s whether the current investment strategy is the right way to harness that power. As Burry implies, the companies that succeed will be those that can demonstrate a clear and sustainable return on their massive AI investments, not just those that spend the most.

For a deeper dive into the history of market bubbles and how to spot them, check out our guide on [INTERNAL_LINK:financial_crises_history].

Conclusion: Is the AI Party Over?

Michael Burry’s AI bubble warning is a sobering counter-narrative to the prevailing optimism in the tech world. While AI undoubtedly holds transformative potential, Burry’s expertise in identifying systemic financial risks demands attention. His argument that trillions are being wasted on infrastructure without a clear path to real-world economic utilization is a powerful critique of the current investment frenzy. Whether his prediction of a long downturn comes true remains to be seen, but his message is clear: in the race to build the future, don’t forget to build a viable business model to go with it.

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