Michael Burry, a well-known investor, has warned that the Nasdaq 100 stock market index is heading toward a “major turning point” after stock prices surged parabolically, pushing technology stock valuations to unsustainable levels.
Burry, who inspired the character in the film The Big Short, noted that the current market resembles the peak of the 2000 dot-com bubble before the market collapsed, especially due to the sharp rise in chip stocks that boosted the PHLX Semiconductor Sector Index by nearly 70% since the end of March.
According to Burry's assessment, the Nasdaq 100 is trading at a price-to-earnings ratio of about 43 times, which is higher than the appropriate level he believes should be around 30 times because “Wall Street is overestimating the profits of the fastest-growing and highest-valued companies in the market (such as big tech) by more than 50%.”
Burry is among several analysts and investors expressing concern about this major pressure driven by the AI trend from tech giants including Alphabet, Amazon, Meta, and other big tech firms, which continue to push the U.S. stock market to new record highs despite ongoing global economic risks from the war.
Jason Goepfert, an analyst at Sundial Capital Research, said this market surge is concentrated in only a few sectors and this is only the fourth time the S&P 500 has hit new highs while data from Bespoke Investment Group shows the PHLX Semiconductor Sector Index has only exceeded its 200-day moving average this significantly twice before—in July 1995 and March 2000—both times near bubble peaks.
However, Michael Burry cautioned investors not to rush into short selling right now because put option costs remain high and mistiming market entry carries significant risks.
He disclosed that he currently holds large leveraged short positions betting against companies he views as undervalued or mispriced, though he did not name these companies, and said he plans to gradually reduce holdings in stocks that do not meet his valuation criteria.
Burry also advised investors to gradually take profits from the recent rally and reduce overall stock holdings, especially in technology shares.
“Although it may seem like the market still has time to run higher, history tells us that whether this party lasts one more week, one month, three months, or even one year, the final outcome will be significantly lower stock prices.” Burry said.
He concluded by saying “The market is reaching an abnormally overheated level, and once that point is reached, the consequences will be inevitable no matter where you try to hide.”
Source:Bloomberg
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