Michael Burry says history offers a blunt warning for today’s AI investment boom: massive spending does not automatically create durable value for shareholders.
In a Google Doc panel discussion among industry leaders published via Substack, Michael Burry says the trillions of dollars in AI spending look similar to Warren Buffett’s escalator in the 1960s, when he installed one only because a competitor across the street had done so.
He notes that an escalator made the shopping experience better for customers, but department store owners shelled out money without creating a competitive advantage.
“Well, value accrues, historically, in all industries, to those with a durable competitive advantage manifesting as either pricing power or an untouchable cost or distribution advantage. It is not clear that the spending here will lead to that. Warren Buffett owned a department store in the late 1960s. When the department store across the street put an escalator in, he had to, too.
In the end, neither benefited from that expensive project. No durable margin improvement or cost improvement, and both were in the same exact spot. That is how most AI implementations will play out.”
Burry says Buffett’s escalator analogy is why the scale of current investment is so troubling.
“This is why trillions of dollars of spending with no clear path to utilization by the real economy is so concerning. Most will not benefit, because their competitors will benefit to the same extent, and neither will have a competitive advantage because of it. In the escalator example, the only value accrued to the customer. This is how it always goes if no monopoly rents can be charged by the producers or providers.”
Burry says he would change his mind if AI agents proliferate or if one tech giant suddenly creates a killer app.
“The biggest surprise that would cause me to recalibrate would be autonomous AI agents displacing millions of jobs at the biggest companies. This would shock me, but would not necessarily help me understand where the durable advantage is. That Buffett escalator example again.
Another would be application layer revenue hitting $500 billion or more because of a proliferation of killer apps.”
Absent those two outcomes, Burry sees two difficult paths ahead that could crush investors.
“Right now, we will see one of two things. Either Nvidia’s chips last five to six years and people therefore need less of them, or they last two to three years, and the hyperscalers’ earnings will collapse, and private credit will get destroyed.”
Burry’s comments frame the AI boom not as a guaranteed wealth generator, but as a high-stakes test of whether unprecedented spending can translate into lasting competitive advantage rather than just better products for users.
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