Michael Burry Warns of AI Bubble with ‘Lord of the Rings’ Meme

Michael Burry, a notable investor known for predicting significant market crashes, has issued a warning regarding the current AI boom. He shared his concerns in a recent post on X, which featured a “Lord of the Rings” meme to illustrate his message.

Burry’s AI Bubble Warning

Burry’s warning comes with a promise to unveil more of his contrarian research in the days ahead. On November 16, he posted a column chart that analyzes the S&P 500’s total capital expenditures over the last 35 years. This chart makes a critical observation: stocks often peak during investment booms, while capital spending tends to rise or remain high for a year or two before dropping sharply.

Historical Patterns in Market Peaks

• The Nasdaq index peaked before the dot-com bubble burst.
• The S&P 500 hit a high just prior to the housing market collapse.
• The S&P Energy index reached a peak before the oil price crash.

Burry’s recent remarks underline his belief that we might be witnessing a similar pattern today. With the Nasdaq 100 recently reaching a record high of approximately 26,000 points, he suggests that this could signal the peak of the current capital cycle.

Concerns Over AI Investments

Major players in the AI market, including OpenAI and Meta, are poised to invest heavily in microchips and data centers. Burry’s analysis raises concerns that this investment boom could also be short-lived. He warns that excessive capital expenditures might lead to a stock market downturn and even a recession.

Employing a “Lord of the Rings” meme, Burry depicted Gandalf the Grey asking Frodo Baggins, “What can you see?” but altered the caption to “Live Love Laugh.” This twist suggests that Burry sees a high level of complacency among investors, blinding them to the potential risks associated with the AI sector.

Burry’s Recent Activity

Previously silent since April 2023, Burry has returned to the spotlight with a series of warnings about the AI boom. He has engaged with various memes from popular culture, including references to “WarGames” and “Star Wars.” His trading strategy has included short positions against companies like Nvidia and Palantir.

Recently, he announced that he would be appearing on a podcast with Michael Lewis, the author of “The Big Short,” to commemorate the 15th anniversary of the book and the 10th anniversary of the film.

Burry’s insights continue to capture the attention of investors, especially as he navigates a landscape filled with optimism and potential pitfalls surrounding AI technologies.