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Michael Burry, the hedge fund investor known for “The Big Short,” urged investors over the weekend to reduce exposure to what he called a blistering AI-driven rally in tech stocks. In a Substack post on Sunday, Burry wrote that for any stocks “going parabolic,” investors should “reduce positions almost entirely,” warning against greed as prices surge.
Stocks have climbed sharply since late March, with semiconductor and memory shares leading the move. The PHLX Semiconductor Index (SOX) rose nearly 70% between late March and Monday’s close as investors rotated into companies viewed as key suppliers to AI.
Within the group, shares of Intel (INTC) tripled and Micron (MU) doubled over the last month and a half, according to the article.
Chip stocks also led a broader pullback on Tuesday after a report showed inflation surged in April.
Burry is among several market commentators drawing comparisons to past speculative booms. On Friday, he wrote that the latest rally was “feeling like the last months of the 1999-2000 bubble.” He noted that many investors and companies were wiped out when the Dotcom Bubble burst in March 2000, and that even survivors took years to recover.
Burry also argued that the rally is not being driven by fundamentals such as jobs or consumer sentiment. “Stocks are not up or down because of jobs or consumer sentiment,” he wrote. “They are going straight up because they have been going straight up.”
Other analysts cited stretched trading levels. A note from Bespoke Investment Group said chip stocks traded 33% above their 50-day moving average on Monday, a level reached only three other times: December 1998, March 2000, and November 2002.
Separately, Jeff DeGraaf, CEO of Renaissance Macro, told clients that the SOX index triggered a warning signal that has appeared only three other times in the last 30 years: 1996, 2000, and 2022.
The article framed a key question for investors: whether current conditions resemble 1996 (early Dotcom boom), 2000 (peak before a major meltdown), or 2022 (a precursor to a comparatively smaller 30% pullback).
DeGraaf cautioned investors against treating bubble warnings as an immediate sell signal. “The right call is to actually wait for the deterioration and sell on the way down, not on the way up,” he said, adding that bubbles “don’t ring a bell at the top.”
Burry said he is not advocating shorting tech stocks. “Right now it is expensive, in general, to buy put options and directly shorting stocks can still cause significant pain,” he wrote on Sunday.
Instead, he recommended cutting back on risk by selling high-flying positions to raise cash. “History tells us that even if the party goes on for another week, month, three months or year, the resolution will be to much lower prices,” he wrote. “The idea is to raise cash, and prepare to put it to work when it makes more sense to do so.”
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