"Big Short" Berry and legendary tycoon Jones jointly warn: AI frenzy closely resembles the night before the 2000 crash

Source: Jin10 Data

The “Big Short” prototype Michael Burry, famous for predicting the collapse of the U.S. housing market, has issued a warning that the current obsession with artificial intelligence in the stock market is beginning to resemble the final stages before the bursting of the internet bubble.

In an article published last Friday on the Substack platform, Burry wrote that he had been listening to financial TV and radio programs while driving long distances, and felt that “everyone is talking about AI nonstop, with no one discussing anything else all day.”

This investor, best known for successfully predicting the U.S. real estate crash, stated that the stock market no longer reacts logically or substantively to economic data such as employment reports or consumer confidence.

Last Friday, the S&P 500 hit a new all-time high, driven by traders paying more attention to the slightly better-than-expected April non-farm payroll report rather than the record-low consumer confidence index.

But Burry wrote that stock price movements are not due to employment or consumer confidence, “they only go up because they keep going up, and behind it is just a conclusion that everyone thinks they understand, two letters… it feels like the last few months of the 1999-2000 bubble.”

Burry compared the recent trend of the Philadelphia Semiconductor Index (SOX) with the rise before the tech stock crash in March 2000. The index rose over 10% last week, bringing its cumulative gain to 65% by 2026.

As Burry made these comments, investors have poured heavily into AI-related stocks over the past two years, pushing major U.S. stock indexes to new highs repeatedly. Semiconductors and large tech stocks related to AI infrastructure and software led this rally, with enthusiasm for generative AI fueling a sharp rise in valuations.

Legendary macro trader and founder and CIO of Tudor Investment Corporation, Paul Tudor Jones, also compared the current AI-driven rally to the period before the internet bubble burst, but he believes this bull market may still have further room to grow.

Jones told CNBC’s “Squawk Box” that the current environment feels like 1999—about a year before the tech stocks peaked in early 2000, and he estimates this rally could last another year or two.

Meanwhile, Jones also warned that if valuations continue to inflate, the eventual correction could be very severe.

Jones said that if the stock market rises another 40%, the market capitalization to GDP ratio could reach an astonishing 300% or even 350%. “Everyone understands that at that point, some jaw-dropping correction is bound to happen.”