'The market has voted': Michael Burry says Big Tech's AI spending is dragging down the S&P 500 while Apple wins — and 'the results are clear'

Both charts are taken from a recent Bloomberg article. The first shows a negative correlation between each tech company’s forward capex (or capital expenditure) estimates and its stock performance.

The second shows that big tech companies: Nvidia, Microsoft, Amazon, Alphabet, and Meta — five of the companies that make up the Magnificent Seven — have all seen their valuations decline under their 10 year average as of July 24.

Apple, which boasts relatively restrained AI spending, is by far the outlier in S&P 500 performance in the first chart. In the second chart, it’s the only company with a valuation above its 10-year average.

Here’s what could be behind this performance — and why Burry might be interested.

Some of the shine might be coming off of massive AI spending

AI has been in an unprecedented boom ever since ChatGPT entered the picture in late 2022. Companies are spending hundreds of billions of dollars on AI infrastructure — and have mostly been rewarded for it.

That might change soon.

People are starting to push back on some parts of AI usage that were previously embraced. Before, companies tokenmaxxed by encouraging their employees to use as much artificial intelligence as they wanted — or more.

But tokens are getting increasingly expensive as AI companies pass more of their expenses on to their customers. In response, companies are starting to pull back on AI usage, especially as reports come back showing AI isn’t as good at reducing workloads as previously thought.

At the same time, regular Americans are starting to push back on AI companies’ accelerated data center creation. A Consumer Reports study found that data centers are making electricity more expensive for the people who live close to them, and people who live near data center construction are reporting ecological consequences.

All this means that some people are bracing for the AI industry to come crashing down. Among them is Fitch, a nationally recognized credit ratings company.

According to Reuters, Fitch says that the global credit backdrop is increasingly vulnerable to an AI market correction.

“The scale of AI investment is such that the exposure of the economy and overall capital market to such a correction is significant,” Fitch said.

Michael Burry has been bearish on AI for a while now

Burry didn’t provide much detail on what, exactly, the market was voting on. But based on his previous statements, he’s likely continuing his bearish outlook on AI.