Michael Burry, the investor whose contrarian bet against the housing market inspired the film The Big Short, is sounding the alarm on the current AI boom, warning that the era of Big Tech generating outsized returns from minimal investments may be over. In a recent exchange on Substack with tech podcaster Dwarkesh Patel, Burry argued that the most critical metric for evaluating the sustainability of AI investments isn’t revenue growth, hiring trends, or market size—but return on invested capital, or ROIC. ROIC measures how efficiently a company converts its capital investments into profits. Historically, software companies like Microsoft, Google, and Meta enjoyed high ROIC because they operated with relatively low capital requirements—what Burry calls an “asset-light” model. But he contends that AI is fundamentally changing that. As these companies pour billions into data centers, custom chips, and massive energy infrastructure, they are becoming increasingly capital-intensive, a shift that will inevitably drive down ROIC. “ROIC was very high at these software companies. Now that they are becoming capital-intensive hardware companies, ROIC is sure to fall, and this will pressure shares in the long run,” Burry wrote. Even if AI expands the addressable market, he argues, the decline in efficiency will weigh on stock valuations over time. Burry has drawn parallels between today’s AI frenzy and the late-1990s dot-com bubble, calling OpenAI the “Netscape of our time.” Just as Netscape’s 1995 IPO ignited the dot-com era, OpenAI’s rise has sparked a wave of optimism and investment in AI. But Burry warns that without meaningful returns on the massive capital being deployed, the current surge may end in a similar crash. His hedge fund, Scion Asset Management, has made sizable bets against two of AI’s most prominent players—Nvidia and Palantir Technologies—according to a September 2023 regulatory filing. These positions reflect his skepticism that the current investment frenzy is sustainable. While companies like Google, Meta, and Anthropic are spending heavily to build the infrastructure for AI applications, they have yet to demonstrate strong profit returns from their AI products. Burry’s core concern is simple: “At some point, this spending on the AI buildout has to have a return on investment higher than the cost of that investment, or there is just no economic value added.” Though Burry has remained largely silent for years, he has become more vocal in recent months, closing his hedge fund to outside investors and turning to Substack to share his views. His latest warnings suggest he sees the AI boom not as a new era of innovation, but as a classic bubble in the making—one fueled by enthusiasm, not sustainable economics.