Investor Michael Burry, famed for his bet against the housing market chronicled in "The Big Short," is warning that the current surge in technology stocks has reached bubble proportions reminiscent of the year 2000. He highlighted the Nasdaq 100's effective price-to-earnings ratio of 43 times as a key indicator of an unsustainable "parabolic" rally.
"We are witnessing history. In the stock market, this is not a good thing, now it's like a bloody car crash scene, just minutes before it happens," Burry wrote in a recent Substack column.
The warning comes as the Philadelphia Semiconductor Index has soared nearly 70 percent since late March, a move Burry finds particularly alarming. According to data from Bespoke Investment Group, the index's current deviation from its 200-day moving average has only been seen twice before: in July 1995 and in March 2000, just before the dot-com bubble burst. Burry argues that Wall Street may be overestimating the earnings of the highest-growth companies by more than 50 percent, contributing to the inflated valuations.
While his outlook is bearish, Burry did not advise investors to short the market, citing the high cost of put options and the risk of mistiming the crash. Instead, he suggested that investors who have benefited from the recent run-up should take profits and reduce their overall equity exposure, particularly in the tech sector. "History tells us that even if the party continues for another week, another month, another three months, or even a year, the end result will be significantly lower prices," he wrote. He noted that he personally holds a portfolio of what he considers "undervalued and cheap" stocks with "a lot of leveraged shorts in the market."
This article is for informational purposes only and does not constitute investment advice.
