Renowned investor Michael Burry, famously depicted in “The Big Short,” has issued a stark warning that the Nasdaq 100 Index is hurtling towards a dramatic reversal. Burry believes the market’s recent “parabolic” surge has driven technology valuations to unsustainable heights, drawing parallels to the peak of the dot-com bubble. His concerns are underpinned by the steep jump in chip stocks, with the Philadelphia Stock Exchange Semiconductor Index climbing almost 70 per cent since late March, resembling the “scene of the bloody car crash, minutes before it happens.”
In a post on Substack, Burry contended that the Nasdaq 100 trades at an estimated 43 times earnings, significantly above the implied level of around 30 times. He suggested that “Wall Street may be overstating by more than 50 per cent the earnings at our fastest growing, most highly valued companies.” Burry’s sentiments are echoed by other market observers expressing unease about the rally fuelled by artificial intelligence spending from major tech firms. Sundial Capital Research highlights the unusual breadth, noting the S&P 500 has rarely hit a record high with only 5 per cent of its members simultaneously at 52-week lows, underscoring the narrowness of the rally.
Historical data from Bespoke Investment Group further supports these apprehensions, showing the Philadelphia semiconductor index has only surpassed its 200-day moving average to this extent twice before: in July 1995 and March 2000, both preceding internet bubble peaks. While cautioning against shorting stocks due to high costs and timing risks, Burry advised investors to consider taking profits from the recent rally and reducing overall exposure, particularly within the tech sector. He warned that “even if the party goes on for another week, month, three months or year, the resolution will be to much lower prices,” adding that the market is entering “rare air, so extreme that the consequences will be unavoidable.”
