Big Short guru: Nasdaq about to resemble a ‘bloody car crash’
The investment guru depicted in the Big Short has warned that New York’s Nasdaq resembled “the scene of a bloody car crash, minutes before it happens”, accusing Wall St of overinflating the bumper Big Tech earnings that have carried US indexes to a string of all-time highs.
Michael Burry, whose decision to bet against the housing market ahead of the global financial crisis has become part of financial folklore, said tech hyperscalers frothy valuations resembled the height of the dot-com bubble shortly before it burst.
“We are witnessing history. In the stock market, that is not a good thing,” Burry wrote in a blog post, adding: “Even if it seems there is more time to run up, anyone lucky enough to be riding these parabolic moves, by not selling, is betting on one’s own ability to jump off at or near the top.”
The tech-heavy Nasdaq and S&P 500 have enjoyed a wave of record highs after several of its megacap tech firms posted bumper trading updates, quash fears that the historic artificial intelligence boom had evolved into an asset bubble. Investors have piled into equities whose returns correlate with faster AI adoption, despite economists warning the world is in the jaws of one of the most profound energy supply shocks in history.
Big Short’s Burry: Consequences of AI bubble will be unavoidable
Chipmakers like Nvidia and have been among the biggest risers. The Philadelphia Semiconductor Index, a basket of the top 30 chip companies, has risen nearly 70 per cent since the beginning of April, thrust higher by Dutch chip giant ASML and its San Francisco rival AMD posting major revenue gains.
Burry, who was played by Christian Bale in the Big Short, accused some of the companies swept up in the rally of overstating their earnings by as much as 50 per cent amid pressure to sate investors’ demands for rapid growth. By his reckoning, the blue-chip Nasdaq index as a whole is trading at 43 times earnings because of the juiced up reports, well above the implied average 30 times.
He said: “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. We are getting into that rare air, so extreme that the consequences will be unavoidable, no matter where one hides.”
Global stock market valuations have remained elevated even into this week, despite very little evidence of a forthcoming solution to the crisis in the Middle East. Donald Trump warned on Monday that the delicate ceasefire between the US and Iran was on “massive life support”, after Iran tabled a set of demands that the President branded a “piece of garbage”.
Despite the diplomatic impasse, the S&P 500, New York’s blue-chip index, ended Monday a shade higher, in a sign traders are becoming increasingly immune to developments in the Middle East war.