Michael Burry, a prominent hedge fund manager known for his successful bet against the housing market in 2008, has raised concerns about the current rally driven by artificial intelligence in the technology sector. He believes the impressive gains in Big Tech stocks are largely supported by questionable accounting practices. This could lead to unsustainable valuations, urging investors to reconsider their exposure to these stocks.
He advises investors to rethink their investment strategies. The suggestion is clear: lessen exposure to technology stocks, as sometimes the best decision in investing is simply opting not to engage.
#What Accounting Practices Are Affecting Tech Stocks?
Since 2020, firms such as Meta and Google have notably extended the depreciation timelines for their AI technologies. By claiming these costly AI servers and chips will have a longer useful life than previously stated, they can report lower annual costs. This practice artificially boosts their profit figures while obscuring the true financial health of the companies.
Burry's analysis indicates that these changes in accounting could underreport total depreciation by approximately $176 billion from 2026 to 2028. As a result, profits could appear inflated by nearly 20% across these major tech players.
#How Does This Compare to Past Market Behaviors?
Burry draws parallels between Nvidia's current market dynamics and those of Cisco Systems during the dot-com era. In the late 1990s, Cisco was integral to building the internet's infrastructure. Its stocks peaked in March 2000, briefly making it the most valuable company before suffering a drastic decline of over 80%. Even now, it has not reclaimed those peak values over two decades later.
Burry has signaled a looming peak in the AI-driven rally, citing oversupplied data centers and inadequate demand from both consumers and businesses as deterrents to sustaining these valuations. He predicts significant potential price retraction of 40% to 50% for leading technology companies as market conditions evolve.
#What Actions Is Burry Taking?
In November 2025, Burry began to hedge against major AI stocks before closing his fund. A warning he issued in March 2026 pointed to potential significant market dislocations and price drops on the horizon.
However, he is not advocating for shorting these stocks. He emphasizes caution against taking such positions given the existing momentum. Although the fundamentals do not support current valuations, he acknowledges that the upward trend may continue for the time being.