Burry cites negative correlation between Big Tech AI capex and S&P 500 performance
Michael Burry argues that heavy artificial intelligence spending is dragging down major tech stocks, with Apple remaining the sole outlier in the group.
Investor Michael Burry has intensified his bearish stance on the artificial intelligence sector, arguing that the market has effectively voted against the heavy capital expenditure commitments of major technology firms. In a post on X on 27 July, Burry cited data from Bloomberg to illustrate a negative correlation between forward capital expenditure estimates and stock performance among the so-called Magnificent Seven companies.
According to Burry’s analysis, valuations for Nvidia, Microsoft, Amazon, Alphabet, and Meta have declined below their 10-year averages as of 24 July. He identified Apple as the distinct outlier within the group, noting that its relatively restrained approach to AI spending has coincided with strong S&P 500 performance and a valuation that remains above its 10-year average.
The divergence in performance comes amid a broader shift in sentiment regarding the AI infrastructure boom that began in late 2022. While companies have spent hundreds of billions on AI infrastructure, there is growing pushback from both corporate clients and consumers. Reports indicate that companies are pulling back on AI usage as token costs rise and efficacy questions emerge, while residents near data centres are raising concerns over increased electricity prices and ecological impacts.
Credit rating agency Fitch has also weighed in on the risks, warning that the global credit backdrop is increasingly vulnerable to an AI market correction. Fitch stated that the scale of investment means the exposure of the economy and capital markets to a potential correction is significant, adding to the caution surrounding the sector.
Burry’s latest comments reinforce his previous warnings about a potential bubble in the AI industry. He has previously disclosed put options on Nvidia and Palantir and expressed concerns in a Substack post that insurers and private credit companies are overly invested in AI. He has warned that a crash could create contagion risks, potentially withdrawing funding for data centre buildouts that have become a part of United States economic growth.
