Michael Burry of 'The Big Short': The Market Has Already Voted — AI Spending No Longer Favored by Wall Street

Michael Burry, the legendary investor who successfully shorted the U.S. subprime mortgage market and is considered the real-life inspiration for the film 'The Big Short,' has stated that Wall Street's attitude toward major tech companies' heavy investments in artificial intelligence (AI) infrastructure is undergoing a clear shift. According to Burry, the market is no longer rewarding massive capital expenditures; instead, it increasingly values whether companies can convert their AI investments into actual profits and returns.

On Sunday, Burry cited market data compiled by Bloomberg on the social media platform X, pointing out that since early June, the stock performance of several large tech companies with the highest AI-related capital expenditures has lagged behind the broader market. These include Alphabet (GOOG-US), Alphabet Class A (GOOGL-US), Amazon (AMZN-US), Microsoft (MSFT-US), Meta Platforms (META-US), and Oracle (ORCL-US).

Alphabet has emerged as one of the weakest performers, despite projecting the highest capital expenditure among major tech firms over the next 12 months. Its stock price has clearly underperformed the market. In contrast, Apple (AAPL-US) has outperformed the overall market despite relatively low anticipated capital spending.

Burry also shared another chart showing that the market is beginning to re-evaluate the valuations of major AI-related stocks. Companies such as NVIDIA (NVDA-US), Microsoft, Amazon, Alphabet, and Meta Platforms have seen their forward price-to-earnings (Forward P/E) ratios decline from recent highs, indicating that investors are reassessing whether massive AI investments will yield sufficient returns.

In his post, he stated bluntly: "The market has already voted. The result is very clear."

| Company | Past 1 Month | Year-to-Date (YTD) | Past 1 Year | Forward P/E | |---|---|---|---|---| | Alphabet Class A | Down 9.59% | Up 1.46% | Up 66.03% | 22.624 | | Alphabet Class C | Down 9.16% | Up 1.20% | Up 64.97% | 22.676 | | Microsoft | Up 3.56% | Down 19.29% | Down 25.52% | 19.724 | | NVIDIA | Up 6.09% | Up 9.53% | Up 17.02% | 23.585 | | Amazon.com | Down 3.34% | Up 2.48% | Down 0.29% | 27.397 | | Oracle | Down 22.18% | Down 41.24% | Down 53.58% | 14.225 | | Apple | Up 18.20% | Up 22.88% | Up 55.58% | 34.843 |

This shift in market sentiment is also reflected in the performance of ETFs tracking the 'Magnificent Seven' tech giants. So far this year, the Roundhill Magnificent Seven ETF (MAGS-US) has declined by 3.37%, significantly underperforming the Invesco QQQ Trust (QQQ-US), which has risen 11.60% over the same period. This suggests that investor enthusiasm for the AI-driven mega-cap tech stocks that previously led market gains has begun to cool.

However, not all market participants agree with Burry’s view.

Prominent venture capitalist Chamath Palihapitiya recently defended Alphabet’s expanded AI investments following its latest earnings report and a sharp drop in share price. On the 'All-In Podcast,' he stated that Alphabet has consistently delivered strong returns on invested capital (ROIC) for decades and that its management team has built long-term credibility. Therefore, investors should give management more patience and trust.

Palihapitiya described Alphabet as a 'compounding machine,' arguing that the company’s long-term competitiveness should not be dismissed due to short-term increases in capital spending. He believes AI investments could still yield substantial returns in the future.

In terms of stock performance, Alphabet Class A shares closed up 0.65% last Friday at $319.74, and rose another 1.56% in pre-market trading on Monday. Alphabet Class C shares closed up 0.24% at $319.09 on Friday and advanced 1.51% in pre-market trading, indicating that buying interest is returning after the post-earnings correction.

Recently, the general market consensus is that major tech firms’ Q2 earnings remain solidly on a growth trajectory. However, investor focus has shifted from revenue and profits to the scale of AI-related capital expenditures, future cash flows, and return on investment (ROI). If companies cannot demonstrate that massive AI spending translates into tangible profits, their valuations may continue to face downward pressure.