We are witnessing history in stock market, that is not a good thing: Michael Burry warns of major Nasdaq reversal

Investor Michael Burry, best known for predicting the 2008 financial crisis and portrayed in The Big Short, has warned that the Nasdaq 100 could be headed for a sharp reversal after what he described as a “parabolic” rally in technology stocks.

In a post on Substack, Burry compared the current market environment to the peak of the dot-com bubble before its collapse, pointing to the rapid rise in chip stocks and soaring technology valuations.

The Philadelphia Stock Exchange Semiconductor Index has surged nearly 70% since the end of March, helping push Wall Street indexes to record highs.

According to Burry, the Nasdaq 100 is currently trading at 43 times earnings, significantly above what he believes is a more realistic level of around 30 times earnings.

He argued that “Wall Street may be overstating by more than 50 per cent the earnings at our fastest growing, most highly valued companies.”

“We are witnessing history. In the stock market, that is not a good thing,” Burry said.

He further compared the situation to the “scene of the bloody car crash, minutes before it happens.”

Burry joins a growing list of market observers expressing concerns over the rally fuelled by artificial intelligence-related spending from major technology companies such as Alphabet and Amazon.

The rally has continued even as geopolitical tensions, including the US conflict with Iran, threaten to slow economic growth and raise inflation through higher oil prices.

Analysts at Sundial Capital Research noted that this would be only the fourth time the S&P 500 has touched a record high while just 5% of its constituent companies were trading at 52-week lows.

Data from Bespoke Investment Group also showed that the Philadelphia Semiconductor Index has moved this far above its 200-day moving average only twice before — in July 1995 and March 2000 during the peak of the internet bubble.

Despite his bearish outlook, Burry advised investors against aggressively shorting stocks due to the risks and costs involved.

He revealed that he currently holds a “significant leveraged short position against a portfolio of companies” that he considers “depressed and cheap,” though he did not specify the companies.

Burry also said he plans to “lighten up on companies” that fail to meet his “strictest valuation requirements.”

He advised investors to take profits from the recent rally and reduce exposure to stocks, particularly technology shares.

“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,” he wrote.

“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,” he said.

“We are getting into that rare air, so extreme that the consequences will be unavoidable, no matter where one hides.”

*With Inputs from Bloomberg