The world of finance feels electric right now, and I totally understand why. Everywhere I look, there are headlines about artificial intelligence, wild profits, and stocks that seem to shoot up overnight. Not so long ago, Michael Burry, the investor made famous by “The Big Short,” made a bold bet against the hype around AI stocks. Now, a lot of experts are asking: is this the start of another bubble, and what could that mean for regular investors?
From my own experience as a financial advisor, I watch these trends closely. AI really does look unstoppable some days. Companies like Nvidia and Palantir have soared to new highs, lifting the whole tech sector with them. But Burry went in the opposite direction. He bought huge “put” positions, a type of option that wins if the stock goes down. Investors often use puts when they think prices are overblown or that hidden risks aren’t being noticed. So why would someone as seasoned as Burry take this approach?
Burry believes a lot of AI-focused companies aren’t as profitable as they seem. He’s pointed out that some firms use clever accounting maneuvers to boost their short-term earnings, especially when it comes to pricey AI hardware. Here’s the basic idea: a company may show strong profits, but those gains rely on spreading out the cost of expensive equipment over many years, sometimes even longer than that hardware really lasts. This inflates their reported earnings, making the business look healthier than it truly is. He’s especially wary of tech companies stretching depreciation schedules for chips and data centers, making profits appear bigger and hiding the true long-term costs. So, those impressive numbers might just be window dressing.
And Burry isn’t alone. Major players like Peter Thiel and SoftBank have also trimmed their AI-related holdings, selling off big chunks of stock. When they did, it sent ripples through the markets, especially among companies making AI chips. Some experts think this could be a warning that valuations have gotten ahead of real-world business results, which is often the sign of a bubble nearing its breaking point.
So what does all of this mean if you’re thinking about investing, or just trying to make sense of the market noise? It’s nearly impossible to time the market perfectly. The real takeaway is to stay skeptical when hype takes over, especially when a single sector starts grabbing all the attention. Massive gains aren’t guaranteed to stick around, and rapid climbs can quickly fall apart. Bubbles tend to form when prices are more about excitement than the reality of business fundamentals.
Recently, I met with a client who admitted feeling a serious case of FOMO, fear of missing out, around AI stocks. We talked about how market bubbles often trigger emotional decisions. That’s exactly why slow, steady investing is usually the safest route, no matter how shiny a trend looks.
For anyone who isn’t sure what to do, here’s what I recommend:
- Think carefully about your own financial goals and risk tolerance.
- Don’t make choices based just on what’s popular or trending.
- Spread your money across different types of investments.
- If you’re uncertain, ask for advice, and never invest more than you can afford to lose.
- Focus on building long-term wealth instead of chasing the latest get-rich-quick idea.
Whether AI stocks catch your eye or you’re interested in other investments, always dig into the basics. Pay attention to what really drives business, and look past the marketing buzz. Michael Burry could end up right or wrong about AI, but his doubts are a good reminder for all of us: don’t follow the crowd blindly. There’s no doubt AI is going to change finance in the long run. The key for investors is to balance that excitement with practical decision-making. Stay curious, ask questions, and always work toward your own financial goals
Written by: Jelte van der Knijff