Quick Read
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Burry called the AI boom “just an asset bubble, plain and simple,” directly comparing today’s enthusiasm to the dot-com era that preceded a massive crash.
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The CAPE ratio sits at 42.56, just 3.7% below its all-time record from December 1999 and more than double its 156-year average of 17.
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The bull market doesn’t need to crash to hurt investors. Years of flat returns while earnings catch up to inflated prices would be painful enough.
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Michael Burry has built a reputation for asking the question Wall Street doesn’t want to hear: What if everyone is wrong?
The investor became famous for betting against the housing market before the 2008 financial crisis. Now he’s warning that today’s artificial intelligence boom bears uncomfortable similarities to previous market bubbles.
Burry isn’t merely warning that some AI stocks are overpriced. In May, the investor who famously bet against the housing bubble called today’s AI boom “just an asset bubble, plain and simple,” comparing it with the dot-com era.
Burry could be early. He could even be wrong. But there’s another reason investors should pay attention: A widely followed valuation indicator is now just shy of breaking a record set during the very bubble Burry is comparing today’s market with.
The Number Behind the Warning
The indicator is the cyclically adjusted price-to-earnings ratio — better known as the CAPE ratio — that was popularized by Nobel Prize-winning economist Robert Shiller, though its roots trace back to value-investing pioneer Benjamin Graham.
Unlike the conventional P/E ratio, CAPE compares stock prices with average inflation-adjusted earnings over the previous decade. By smoothing out the effects of recessions and unusually strong or weak profit years, it offers a broader view of how expensive the stock market is relative to corporate earnings. And right now, the answer is: very expensive.
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