Michael Burry of "The Big Short" fame warns of inflated tech stock valuations amid fears of an AI bubble

[DragonSlayer101]

Sounding off: Amid growing fears of a potential AI bubble, renowned Wall Street investor and former hedge fund manager Michael Burry has claimed that tech companies have been manipulating their financial reports and inflating earnings by as much as 42% over the past decade. Burry's comments have unsettled many investors who were already concerned about the unprecedented rise in tech valuations over the past couple of years.

Best known for predicting the 2007 – 2008 subprime crisis that ultimately escalated into a full-blown financial crash, Burry argued in a recent Substack post that several Nasdaq-100 tech companies have repeatedly misreported stock-based compensation over the past decade, overstating earnings by around 20% and leading investors to buy stocks at inflated valuations. According to him, the issue stems from the way GAAP financial statements treat SBC as a non-cash expense without fully reflecting its economic impact on shareholders.

Burry, who shut down his hedge fund last year citing concerns over an AI bubble and inflated stock valuations, named Meta, Tesla, Datadog, Workday, Axon, Shopify, Palantir, Marvell, CrowdStrike, and Zscaler among the worst offenders. If his calculations are accurate, many tech stocks on Wall Street are effectively trading at around 30 times earnings, rather than the 25 times price-to-earnings ratio that investors believe they are buying into.

Burry singled out Tesla as the clearest example of how companies are allegedly distorting GAAP reporting to understate stock-based compensation costs. Describing CEO Elon Musk's $1 trillion pay package as a "beastly mass," Burry said that removing it from his dataset would immediately reduce overall Nasdaq-100 misreporting from 20% to 12.5%. He was also critical of Meta, claiming that the company's adjusted price-to-earnings ratio is closer to 24, compared with the reported figure of 19.

Explaining the discrepancy, Burry said that SBC figures reported by most tech companies rely on a simplified interpretation of GAAP, in which shareholders effectively see only 83.49 cents of every dollar in actual earnings. According to him, "the wayward 16.51 cents wave crudely at GAAP and thumb their noses at shareholders on their way to employees' pockets," a remark likely referring to C-suite executives and senior managers.

Burry also questioned companies' earnings projections, arguing that estimates are about 42% higher than what he calls "true owners' earnings." He estimates that the combined real earnings of 97 Nasdaq-100 companies total roughly $4.1 trillion over the past decade ending in fiscal 2025 – well below the $5.8 trillion reported by Wall Street analysts and financial media.

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Michael Burry of "The Big Short" fame warns of inflated tech stock valuations amid fears of an AI bubble

 

[NumberNine]

42% fake sounds about right for the current landscape. Homecooked books.

 

[pnntmp]

If I correctly remember, Burry closed his fund approx 6 months ago, after betting against AI companies (with the exact same argumentation) and failing spectacularly.

Now he's trying to spin the same story again, probably in an attempt to destabilize the market and cause a crash. That's unlikely to happen though, as those considered prophets lose their aura after the first failed prophecy.

 

[Dreadcthulhu]

If I correctly remember, Burry closed his fund approx 6 months ago, after betting against AI companies (with the exact same argumentation) and failing spectacularly.

Now he's trying to spin the same story again, probably in an attempt to destabilize the market and cause a crash. That's unlikely to happen though, as those considered prophets lose their aura after the first failed prophecy.

Reminds of the old joke: "Leading economist has successfully predicted 9 of the last 4 recessions".

 

[gamerk2]

Reminds of the old joke: "Leading economist has successfully predicted 9 of the last 4 recessions".

Well, when the market is devoid of reality, it's hard to apply reality to it.

 

[Theinsanegamer]

If I correctly remember, Burry closed his fund approx 6 months ago, after betting against AI companies (with the exact same argumentation) and failing spectacularly.

Now he's trying to spin the same story again, probably in an attempt to destabilize the market and cause a crash. That's unlikely to happen though, as those considered prophets lose their aura after the first failed prophecy.

That doesnt mean he was wrong, just that he didnt have the funding to keep a long short going.

He almost didnt make the 08 crash as his investors pulled out thinking he was crazy.

 

[Endymio]

That doesnt mean he was wrong,

Yes, it means he was wrong. In ANY bull market, if you continually predict an upcoming correction, it'll eventually be right ... no different than predicting every morning that today, someone somewhere in your city will be murdered.

 

[TheDreams]

To be fair he's also made like 20 other warnings since 2008, and pretty much that was his only hit...but we'll see

 

[Watzupken]

If I correctly remember, Burry closed his fund approx 6 months ago, after betting against AI companies (with the exact same argumentation) and failing spectacularly.

Now he's trying to spin the same story again, probably in an attempt to destabilize the market and cause a crash. That's unlikely to happen though, as those considered prophets lose their aura after the first failed prophecy.

The actions taken by people are normally to suit their agenda and benefit themselves. So I agree that what he is saying is more to benefit himself. Having said that, I think it is no secret that companies may result to creative accounting to make themselves sound more profitable than they really are because confidence in a company comes with a lot of benefits, especially to the CEO and board members. And you can tell these big techs are getting creative, announcing investments into each other in a circular financing and pumping up each others' share prices.

 

[Watzupken]

Yes, it means he was wrong. In ANY bull market, if you continually predict an upcoming correction, it'll eventually be right ... no different than predicting every morning that today, someone somewhere in your city will be murdered.

Yes and no. Yes because anything that goes up will have to come down eventually, especially in this case where it has gone up substantially. No because timing of a crash is hard to predict for various reasons. This supposed "free market" is not as free as it sounds. So I think he nailed the root cause of the crash just like the case now, but as to when the crash will happen, you won't be able to tell. Personally, I feel the market lacks common sense, I.e. if none of this big AI companies have a path to make money for many years, what makes them comfortable to continue investing in them? Would you if you know that a company is losing a lot of money each day with no path to profit? The "promises" of Gigawatt data centers in 1 year or less is also questionable. It sounds like magic in a sense Amazon, Meta, OpenAI, etc, will announce giant data centers ready by x date, but conveniently ignored the fact that the grid may not support this growth and the construction + setup will take time. Hence, now, we are seeing data centers getting delayed. But is it surprising?

 

[pnntmp]

The actions taken by people are normally to suit their agenda and benefit themselves. So I agree that what he is saying is more to benefit himself. Having said that, I think it is no secret that companies may result to creative accounting to make themselves sound more profitable than they really are because confidence in a company comes with a lot of benefits, especially to the CEO and board members. And you can tell these big techs are getting creative, announcing investments into each other in a circular financing and pumping up each others' share prices.

If I use your repair shop and you come to my grocery store, are we involved in a 'circular financing' scheme to pump up something? Or we simply do what's logical?

Very few companies provide the products and services needed to participate in the AI race. None of them has the full stack. Many of them are working towards having the full stack, which is great ... but meanwhile, what options do they have? Here they are:
Option 1 - rush to have the full stack in a couple of years, then start working on your models; and Option 2 - cooperate with others and start working right now.

Isn't it logical to choose Option 2? What you call 'circular financing' is not done to pump share prices, it's natural cooperation and the only logical course of action.

 

[pnntmp]

That doesnt mean he was wrong, just that he didnt have the funding to keep a long short going.

He almost didnt make the 08 crash as his investors pulled out thinking he was crazy.

It does mean he was wrong.
For any prediction to make sense, it has to be about something concrete happening within a well defined period of time. Open end predictions are entirely meaningless.

For a prediction to be right, it has to make sense and nail both what will happen and when.
Burry's 08 prediction was right.
His prediction from half an year ago was wrong.

I find it ridiculous (and dangerous to your wallet) to ascribe higher value to predictions of certain individuals because they were right about something in the past. Prophets do not exist. Making the right prediction about something complex and non-obvious is usually a matter of luck. Burry has been consistently unlucky and wrong, after being lucky and right once in 08. But the media made him a star, there was a movie and stuff ... I think it will be really good for the public education to make a sequel of that movie, this time about Burry being wrong, losing money and closing his fund.

 

[richstad]

If I correctly remember, Burry closed his fund approx 6 months ago, after betting against AI companies (with the exact same argumentation) and failing spectacularly.

Now he's trying to spin the same story again, probably in an attempt to destabilize the market and cause a crash. That's unlikely to happen though, as those considered prophets lose their aura after the first failed prophecy.

Have you taken a look at American televangelists?

 

[Endymio]

Have you taken a look at American televangelists?

Or environmentalists' predictions of impending disaster?

 

[BbN48]

This guy was right, to great effect, ONCE. And he's been wrong every other time.

 

[Theinsanegamer]

It does mean he was wrong.
For any prediction to make sense, it has to be about something concrete happening within a well defined period of time. Open end predictions are entirely meaningless.

For a prediction to be right, it has to make sense and nail both what will happen and when.
Burry's 08 prediction was right.
His prediction from half an year ago was wrong.

I find it ridiculous (and dangerous to your wallet) to ascribe higher value to predictions of certain individuals because they were right about something in the past. Prophets do not exist. Making the right prediction about something complex and non-obvious is usually a matter of luck. Burry has been consistently unlucky and wrong, after being lucky and right once in 08. But the media made him a star, there was a movie and stuff ... I think it will be really good for the public education to make a sequel of that movie, this time about Burry being wrong, losing money and closing his fund.

Burrys prediction was made 2 years before, and e was a year early to the payoff. Like I said, he almost didnt make it to 08.

Its foolish to throw out all claims that the economy has problems just because someone doesnt 100% know when it will fail.

 

[pnntmp]

Burrys prediction was made 2 years before, and e was a year early to the payoff. Like I said, he almost didnt make it to 08.

Its foolish to throw out all claims that the economy has problems just because someone doesnt 100% know when it will fail.

The economy always has some problems. It's foolish to assume it will fail because of that.

 

[yRaz]

It does mean he was wrong.
For any prediction to make sense, it has to be about something concrete happening within a well defined period of time. Open end predictions are entirely meaningless.

For a prediction to be right, it has to make sense and nail both what will happen and when.
Burry's 08 prediction was right.
His prediction from half an year ago was wrong.

I find it ridiculous (and dangerous to your wallet) to ascribe higher value to predictions of certain individuals because they were right about something in the past. Prophets do not exist. Making the right prediction about something complex and non-obvious is usually a matter of luck. Burry has been consistently unlucky and wrong, after being lucky and right once in 08. But the media made him a star, there was a movie and stuff ... I think it will be really good for the public education to make a sequel of that movie, this time about Burry being wrong, losing money and closing his fund.

There is this thing called fundamental analysis and the only people making any money off AI are the hardware companies. Very few AI companies are profitable. It's like the App craze of early 2010s where everyone thought that every app was a billion dollar idea. What's wrong is the reckless investing and people having massively over leveraged positions. The banks have started massively limiting access to capital for AI companies and that's all anyone needs to see. We don't need one telling us about bad investments, the banks have entire teams of people doing risk management. So we don't have to listen to this guy, we can just look at what the banks are doing. AI has been a thing for about 5 years now and aside from making nVidia rich, we haven't really seen any succes stories. Most "profitable" AI ventures are just military spending and other companies like Flock and planting just for things mass surveillance. And while that might be a profitable business model, it's not like those use cases are beneficial to society as a whole. Like "here, take my tax dollars and use them to spy on me and kill people in other countries"

 

[Endymio]

There is this thing called fundamental analysis and the only people making any money off AI are the hardware companies. Very few AI companies are profitable.

Utter nonsense. First of all, literally tens of thousands of companies are profiting off AI, even though they're not "AI firms". And even AI-only corporations are doing very well -- I'm personally invested in three which are turning a large profit, two of the three have gross margins above 50% ....an absolutely insane level.

We don't need one telling us about bad investments, the banks have entire teams of people doing risk management. So we don't have to listen to this guy, we can just look at what the banks are doing.

Total AI investment in 2026 is expected to be in excess of $650 billion. That's billion with a "B".

 

[pnntmp]

There is this thing called fundamental analysis and the only people making any money off AI are the hardware companies. Very few AI companies are profitable. It's like the App craze of early 2010s where everyone thought that every app was a billion dollar idea. What's wrong is the reckless investing and people having massively over leveraged positions. The banks have started massively limiting access to capital for AI companies and that's all anyone needs to see. We don't need one telling us about bad investments, the banks have entire teams of people doing risk management. So we don't have to listen to this guy, we can just look at what the banks are doing. AI has been a thing for about 5 years now and aside from making nVidia rich, we haven't really seen any succes stories. Most "profitable" AI ventures are just military spending and other companies like Flock and planting just for things mass surveillance. And while that might be a profitable business model, it's not like those use cases are beneficial to society as a whole. Like "here, take my tax dollars and use them to spy on me and kill people in other countries"

I make more money because of AI, and I'm not a hardware company.
Your post is a summary of what you wish were true.

 

[Str8Shot]

If I correctly remember, Burry closed his fund approx 6 months ago, after betting against AI companies (with the exact same argumentation) and failing spectacularly.

Now he's trying to spin the same story again, probably in an attempt to destabilize the market and cause a crash. That's unlikely to happen though, as those considered prophets lose their aura after the first failed prophecy.

You don’t know the full story. He had to close his books because he was right on the money, but shorting stocks for his clients despite a paradoxical rally resulted in losses his company couldn’t sustain. Michael Burry is nearly always correct, but he’s also nearly always EARLY, and the from the looks of things, he’s going to be proven correct in short order once again.

 

[Endymio]

You don’t know the full story. He had to close his books because he was right on the money, but shorting stocks for his clients despite a paradoxical rally resulted in losses his company couldn’t sustain.

LOL, what? Had he been right, he wouldn't have bankrupted his fund. Short positions are a prediction for a particular time frame; if you're wrong about the time, you're wrong, period.

Michael Burry is nearly always correct, but he’s also nearly always EARLY.

Again: in any bull market, predicting an eventual correction at some undefined point in the nebulous future is like predicting the sun will rise tomorrow. Burry's incompetence cost those who believed in him billions of dollars.

 

[LimyG]

"The AI bubble is about to burst."

Been reading that over a year now, and yet it's still paying investors very nicely indeed.

 

[takemaru]

"The AI bubble is about to burst."

Been reading that over a year now, and yet it's still paying investors very nicely indeed.

NVidia stocks right now have a 40 price-to-earnings ratio. It means it will take 40 years for the stocks to pay for the initial investment. You are better off investing in a mining company.

 

[Endymio]

NVidia stocks right now has a 40 price-to-earnings ratio. It means it will take 40 years for the stocks to pay for the initial investment. You are better off investing in a mining company.

False. That means it would take 40 years if NVidia's earnings remained constant. Yet their projected earnings are expected to rise drastically over the next few years.