Michael Burry says the market today feels like ‘the last months of the 1999-2000 bubble’

Michael Burry, the famed investor known for his accurate prediction of the U.S. housing crash, is sounding the alarm on the stock market’s current obsession with artificial intelligence. In a recent Substack post, Burry expressed concern that the market’s relentless focus on AI is reminiscent of the final stages of the dot-com bubble.

Burry highlighted the overwhelming chatter surrounding AI in financial media, noting that it has become the primary topic of discussion throughout the day. He pointed out that stocks no longer seem to react meaningfully to traditional economic indicators such as jobs reports or consumer sentiment. Despite a record low reading in consumer sentiment, the S&P 500 reached a new all-time high as traders fixated on a slightly better-than-expected April jobs report.

According to Burry, the stock market’s current trajectory is driven more by momentum than by fundamental economic data. He likened the situation to the late 1990s tech bubble, where stocks soared simply because they were already on an upward trend. Burry specifically highlighted the Philadelphia Semiconductor Index (SOX), which has surged more than 10% in a single week, bringing its year-to-date gains to a staggering 65%.

This warning from Burry comes at a time when investors have been pouring into AI-related stocks, fueling a continuous rally in major U.S. equity indexes. Semiconductor companies and large-cap tech firms involved in AI infrastructure and software have been leading the charge, with excitement around generative AI driving up valuations.

Notably, investor Paul Tudor Jones has also drawn parallels between the current AI-driven rally and the lead-up to the dot-com bubble burst. Jones believes that the bull market still has room to run, comparing the current environment to 1999, a year before the tech bubble peaked in early 2000. However, he cautioned that if valuations continue to expand, a significant correction could be on the horizon.

Jones warned of the potential for a dramatic correction if the stock market were to surge another 40%, leading to a significant imbalance between stock market valuations and GDP. He emphasized the importance of being prepared for possible “breathtaking” corrections in the future.

In conclusion, both Burry and Jones are signaling caution amidst the euphoria surrounding AI stocks and the broader market rally. While the current exuberance may continue for some time, investors should be mindful of the risks associated with inflated valuations and the potential for a sharp market correction.