Michael Burry Warns of a Crash Worse Than 2000 — Is the AI Bubble About to Pop?

Burry Sounds the Alarm: Tech & AI Valuations Are “Dangerously Inflated”

Michael Burry — famed for calling the 2008 housing crash — now warns the U.S. stock market may be headed for a collapse even deeper than the 2000 dot-com crash. The source of the danger? A surge in AI and tech-stock valuations that he believes have detached from underlying fundamentals.

He argues that more than half of U.S. equity assets are now locked in passive funds and ETFs — meaning fewer active, discerning investors remain. That, Burry warns, removes a critical stabilizer from markets. Without that stabilizer, in a downturn, panic could cascade quickly.

Burry names big AI-heavy firms among the most vulnerable. He points out that “accounting tricks” — like stretching depreciation on expensive hardware — are masking real risk under the surface.

Because of that, he’s taken bearish personal positions, believing a “brutal sell-off” may be coming.

Why This Warning Matters — and Why It Could Hit Hard

Valuations vs. Real Earnings Diverging

Many firms soaring on AI hype still generate modest (or negative) free cash flow. When you combine lofty valuations with thin profitability, you get a fragile foundation — one that can crack if sentiment shifts or macro conditions worsen.

Passive Investing = Systemic Risk

With so much money parked in index funds, markets have fewer “watchers.” Active investors traditionally help smooth volatility by evaluating fundamentals, shorting overvalued names, and selling before a bubble pops. Without them, bubbles are harder to detect — and harder to unwind sustainably.

Credit, Capex & Capital Structure Under Pressure

Companies chasing AI scale often carry big debts: for hardware, data centers, infrastructure. In a downturn, that leverage becomes toxic. Lower cash flow + high interest costs = sharp downside once sentiment cracks.

What Traders & Option Players Should Watch

At-Risk Names: AI-Heavy, Speculative Stocks

Firms priced on expectations — not earnings — are most vulnerable. Watch for:

• Rising implied volatility
• Surging put volumes or skew
• Sharp down moves triggered by negative catalysts or macro headlines

Possible Safe Havens: Cash-Flowing, Value-Oriented Companies

Companies with stable revenues, diversified business models, or modest valuations may outperform during a broad sell-off. Investors may rotate out of hype-heavy names and into “boring but solid” names — particularly in sectors like consumer staples, utilities, or certain financials.

Increased Demand for Hedging — Volatility May Spike

As risks rise, more traders may buy protection (puts, long-vol structures), which in turn could fuel spikes in equity volatility and derivative pricing across sectors — especially tech and AI.

What to Monitor on Unusual Whales

• Unusual options flow, open interest spikes, and skew shifts in major AI/tech stocks.
• Rising put-call ratios, especially in speculative or deeply overvalued equities.
• Surges in volatility or volatility-skew — early signs of rising hedging demand or panic.
• Sector rotation: flows away from speculative tech toward stable, cash-flow-driven names.

Unusual Whales tools — options flow history, GEX tracking, volatility metrics — can help you spot early warning signs and adapt positions accordingly.

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