Are U.S. stocks reenacting the 2000 bubble burst scenario? "The Big Short" issues another warning: The Nasdaq 100 is set for a major reversal!

Over the past few weeks, AI-driven U.S. stocks have continued to hit record highs, and this epic frenzy has raised warnings among Wall Street professionals.

The main character of the movie “The Big Short,” investor Michael Burry, who accurately predicted the 2008 U.S. subprime mortgage crisis, has issued a new warning, stating that he believes the market may be on the verge of a major reversal.

He posted on Substack early Monday morning, saying that history seems to be repeating itself.

“Looking back at the market trends over the past week, I suddenly realize I have experienced all of this before,” he wrote. “The Nasdaq 100 index is about to undergo a complete reversal.”

The former head of Scion Asset Management pointed out that in recent weeks, U.S. stocks have surged significantly, partly due to strong corporate earnings reports and partly due to market optimism about a peace agreement between the U.S. and Iran, despite no signs of any agreement being reached.

“I make this judgment: the market is about to peak and then decline,” Burry said. He also predicted that conflicts with Iran, recent spikes in oil prices, or risks in the private credit market could all serve as triggers for a major U.S. stock market crash next.

Burry specifically highlighted the technology and semiconductor sectors, which have been skyrocketing over the past month driven by new trading activity and strong earnings reports. The iShares Semiconductor ETF has risen 65% so far this year, marking one of its best rebound performances in history.

The Nasdaq 100 index has gained 16% over the past month.

Burry stated that, according to his calculations, the current price-to-earnings ratio of the Nasdaq 100 is about 43, well above the “reasonable level” of around 30, because “Wall Street has overestimated the earnings of the fastest-growing, highest-valuation companies by 50%.”

“We are witnessing history. In the stock market, this is usually not a good thing,” Burry said. He compared the current situation to “the last few minutes before a bloody car crash.”

However, Burry advises against shorting stocks, as the cost of put options is high and can easily lead to losses if the timing is off.

Burry also admitted that, due to his long-standing pessimistic outlook on the market, he has earned a reputation as a “boy who cried wolf.” But he pointed out that he also has a track record of making accurate predictions multiple times.

“The boy who cried ‘wolf’—he shouted so many times, but there was never a wolf. What happened in the end? There was a wolf. But no one listened to his calls,” he wrote.

In a post last week, Burry cited an analysis from BTIG analysts, which showed that, based on certain metrics, the current heat in the U.S. stock market has surpassed that of the dot-com bubble period.

According to the analysis, the top 10 performing stocks in the Nasdaq 100 have averaged a 784% increase over the past year. In contrast, in the year before March 2000 (just before the dot-com crash), the top 10 stocks in the index had an average gain of 622%.

Last week, Burry also warned that the current craze for AI in the stock market resembles the final stages before the dot-com bubble burst in 2000. He stated that the market no longer reacts logically to economic data such as employment reports or consumer confidence.

Legendary American investor and billionaire hedge fund manager Paul Tudor Jones also pointed out similarities between the current AI-driven stock market rally and the period before the dot-com bubble burst, but he believes the bull market could last another one to two years. Meanwhile, he warned that if stock valuations continue to inflate, the eventual correction could be very severe.

(Source: Cailian Press)