Michael Burry Warns AI Bubble Could Burst Harder Than 2000, Hitting Nvidia and Palantir the Most

Michael Burry — the contrarian investor made famous by The Big Short — has issued a strong warning about what he sees as a dangerously inflated artificial intelligence bubble. In a conversation with author Michael Lewis, Burry argued that today’s AI-driven excitement is more extreme, more fragile and more structurally risky than the dot-com boom that led to the collapse of Nortel and Cisco in 2000.

According to Burry, the scale of today’s market euphoria is not being fully recognised, and investors may be substantially underestimating how painful the eventual correction could be. He believes companies like Nvidia and Palantir sit directly at the centre of what he describes as a “runaway capex cycle” that is pushing valuations into unsustainable territory.

Runaway Capex Cycle Signals a Deepening AI Bubble, Says Burry

Burry explained that the defining feature of the current AI mania is the extraordinary acceleration in capital expenditure across the technology sector. He compared this pattern to the fibre-optic and router investment spree of the late 1990s — but said today’s version is even more intense in important ways.

He pointed to what he called a “net investment mania” in AI, where investment continues to grow rapidly even as market signals start flashing red. In the late 1990s, the Nasdaq index peaked before telecom investment slowed; today, Burry sees the same cycle repeating, except with higher speed and larger flows.

A critical problem, according to him, is that markets are now incentivising companies to announce spending rather than generate returns. Burry claimed:

“If you announce a dollar of capex on AI, your market cap will go up three dollars.”

He argued that this reflexive behaviour — where spending itself becomes the driver of valuation — is one of the clearest signs of an overheated cycle. Companies like Nvidia and Palantir, he said, have become the biggest symbols of this enthusiasm, even though neither originally built their core products specifically for AI workloads.

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Why Burry Says Nvidia and Palantir Are “The Two Luckiest Companies on the Planet”

Burry described Nvidia and Palantir as “the two luckiest companies on the planet,” but for very different reasons.

Nvidia, he argued, benefited from two major waves entirely outside its original business design — the crypto mining boom and now the generative AI surge. He characterised Nvidia’s fortunes as the outcome of being in the right place at the right time rather than building products specifically for these cycles.

For Palantir, Burry said the company executed a rapid pivot after the rise of ChatGPT. According to him, Palantir began re-labelling its existing consulting-heavy software offerings as “AI,” during a period when corporations were eager to showcase internal AI adoption. This allowed Palantir to ride the wave of demand from companies trying to demonstrate that they had “AI-ed something,” in his words.

However, Burry said the company’s underlying economics remain weak. Burry Questions Palantir’s Profitability and Valuation

A major point of criticism from Burry is Palantir’s approach to profitability. He said much of the company’s reported income is an “illusion” because it relies heavily on stock-based compensation.

He argued that when stock grants are treated as a true expense, Palantir’s profitability becomes far less impressive. With a substantial portion of income effectively consumed by stock payouts, the company must then buy back shares simply to offset dilution — a cycle Burry views as unsustainable.

He also highlighted Palantir’s valuation, pointing out a metric he found unprecedented:

“Five billionaires came out of roughly four billion dollars of revenue.”

For Burry, this ratio was something he said he had “never seen before,” and it reinforces his view that Palantir’s valuation sits far above reasonable levels.

Why Burry Thinks the Coming Crash Will Be Worse Than Nortel and Cisco in 2000

Burry’s thesis on why the AI correction could be sharper than the Nortel-Cisco cycle rests on two pillars:

1. Today’s bubble is bigger and more reflexive, driven by hype-based capex and thin monetisation.

2. Market structure has fundamentally changed, making a downturn more dangerous.

Burry said that in the late 1990s, the telecom bubble expanded rapidly but still operated within an environment dominated by active investors. Today, passive investing — through index funds and ETFs — represents more than half of all US equity assets.

This shift, he said, has removed a stabilising buffer from the system.

According to Burry, the dominance of passive flows means that once selling pressure begins, there may be no meaningful group of active buyers willing to absorb falling prices. He warned:

“When the market goes down now… the whole thing is just going to come down.”

In his view, passive investing amplifies bear markets because it enforces selling mechanically rather than selectively. Once large names like Nvidia or Palantir start falling, index-linked flows could intensify the decline, creating a cascading effect.

Burry’s Final Warning: Thin Monetisation and Reflexive Capex Make AI Fragile

For Burry, the core issue is that today’s AI boom is built on hype-driven capital expenditure, weak monetisation and extreme investor reflexivity. Companies are rewarded for spending rather than earning, valuations rise based on announcements rather than revenue, and passive flows underpin the entire market structure.

These conditions, he said, are not just signs of a bubble — they are signs of a bigger, faster and more dangerous bubble than the one that toppled Nortel and Cisco.

Burry believes the unwinding of this cycle will be sharper because both fundamentals and market plumbing are misaligned. With Nvidia and Palantir at the centre of this frenzy, he argues that the eventual correction could be deeper than investors currently expect.

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