'Big Short' investor Michael Burry says AI is turning Big Tech into a worse business

Michael Burry, renowned for his role in 'The Big Short,' has raised concerns about the future profitability of Big Tech companies, attributing potential declines to the rise of artificial intelligence. In a recent conversation with tech podcaster Dwarkesh Patel, Burry emphasized that investors in the AI sector should prioritize return on invested capital (ROIC) over traditional metrics like revenue growth or market size. Burry noted that ROIC, which measures how efficiently a company converts its investments into profits, was historically high for software firms. However, as these companies shift towards becoming more capital-intensive due to the demands of AI—requiring significant investments in data centers, chips, and energy—he predicts that ROIC will inevitably decrease. This decline could exert downward pressure on stock prices over time. He specifically pointed out that industry giants like Microsoft, Google, and Meta are transforming from their traditionally asset-light models into more hardware-heavy operations, a move that could reshape their financial landscapes. Even if AI broadens their market reach, Burry warns that the falling ROIC might hinder stock performance for years. Burry's insights come amid his growing public profile, particularly after he began sharing his financial analyses on Substack. He has drawn parallels between the current AI boom and the late-1990s dot-com bubble, suggesting that companies like OpenAI could be the 'Netscape of our time,' referencing the infamous tech IPO that heralded the internet hype cycle. Notably, Burry's hedge fund, Scion Asset Management, has made significant bets against AI leaders such as Nvidia and Palantir Technologies, as revealed in a recent regulatory filing. Major players in the AI sector, including OpenAI and Google, are pouring substantial resources into their infrastructure to support their data-heavy applications. However, the lack of substantial profits from these investments has led Burry and other investors to raise alarms about the sustainability of the AI market, cautioning that it might be on the verge of a significant downturn. He starkly warned that without a return on investment that exceeds the costs, the economic value of these AI ventures could diminish drastically, potentially leading to widespread bankruptcies in the sector. "Will it be the Panic of 2026? 2027?" Burry queried, suggesting that the industry needs to reassess its trajectory to avoid such a fate.