Michael Berry, an investor who gained recognition for predicting the collapse of the US real estate market, is now preparing his bet against the artificial intelligence boom. In his view, the bubble in this sector may burst sooner than expected, amid concerns about the need to generate returns on investments.
To strengthen this position, Berry has replaced some of his sold positions with put options on AI and semiconductor stocks. This strategy increases his exposure to a potential decline and concentrates contracts with maturities up to 2027.
In his newsletter, Berry stated that he is 'accelerating' his theory timeline and therefore requires more leverage in his positions. Part of the changes was also aimed at reducing the tax burden, but he emphasized that the main reason is his belief that the 'AI bubble could burst sooner or later.'
Key Changes to the Strategy
The choice of options is also linked to volatility levels, which Berry considers exceptionally low. This makes the contracts relatively inexpensive and allows for greater exposure over a shorter period of time.
The argument is based on the ratio of funds invested in the sector versus the ability of these investments to generate income. Berry cited an analysis by Ares Management, according to which it only takes a period when AI revenue falls below what is necessary to sustain investments for company boards to decide to redirect capital.
Discussion is also ongoing among analysts and financial authorities. The President of the Bank of England, Andrew Bailey, noted the possibility of asset price corrections and observed that the market might be valuing companies as winners even before it becomes clear who will truly succeed.
Another point concerns memory chip supply. Jason Chen, CEO of Acer, stated that the growth of Chinese production could change the dynamics of the shortage in the sector.
When might a permanent shortage occur? Production capacity in China is constantly growing, and there are absolutely no shortage problems, according to Jason Chen, CEO of Acer, in an interview with CNBC.
However, the scenario is interpreted differently. There are estimates that part of the AI expansion has stronger foundations, supported by long-term contracts and growing demand for chips, data centers, and computing power.
There is also the argument that smaller companies may expand this market as access to artificial intelligence becomes cheaper. In that case, demand would not depend solely on large technology corporations.
Despite this, increased investment has fueled concerns about financial returns. The investor previously compared the market in May to the last months of the 1999-2000 tech bubble. Now, his strategy indicates that he has begun working with a shorter timeframe for this theory.
Currently, the market is moving in the opposite direction: the Nasdaq Composite index recently reached a record high, while Micron and Palantir remain below their historical highs. This divergence summarizes the debate: AI may continue to expand its utility while investors debate whether the money invested in the sector is growing faster than the income capable of supporting it.