MW Why Michael Burry's AI skepticism can be explained by an escalator that Warren Buffett built

By Barbara Kollmeyer

Nvidia and Palantir's competitive AI edges won't last, argues Michael Burry

Warren Buffett, now-retired CEO of Berkshire Hathaway, pictured in 2019. Famed investor Michael Burry uses an escalator example from Buffett to explain his AI skepticism.

Famed for predicting the housing market crash and a vocal skeptic of the AI boom, Michael Burry is now invoking one of the world's most famous investors to add gravitas to his argument.

Burry used an escalator built by Berkshire Hathaway's $(BRK.A)$ Chairman Warren Buffett, in a department store he owned in the late 1960s, to illustrate how vast AI spending may not leading to value accruing across its supply chain.

"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 implementation will play out," Burry said in a discussion with Jack Clark, Anthropic co-founder, and leading podcaster Dwarkesh Patel that published on Substack.

That is why "trillions of dollars of spending with no clear path to utilization by the real economy is so concerning," Burry, who was famously portrayed in "The Big Short" for spotting the subprime bubble, told moderator and newsletter writer Patrick McKenzie.

Berkshire Hathaway purchased Baltimore's Hochschild-Kohn department store in 1966 - it was sold three years later - through a company called Diversified Retailing that later merged with the conglomerate. Buffett described in a 1989 letter to shareholders how he learned that a bad business model couldn't be fixed by a cheap price.

Like the two department stores, most companies involved in the AI supply chain will see the same benefits if ,any, and none will have a competitive advantage, Burry said. As for Nvidia (NVDA) and Palantir (PLTR) - he has big bearish bets against those companies on the view they are overvalued - he says their current advantage with selling products designed for AI won't last.

When it comes to Nvidia, for example, he sees small language models (SLMs) and Application-Specific Integrated Circuits (ASICs) - customized chips used for one purpose - as the future, with neither will need the company's pricey, powerful chips.

"Nvidia is the power-hungry, dirty solution holding the fort until the competition comes in with a completely different approach," he said.

Burry was also fairly busy on X over the weekend, retweeting a post by Tae Kim, the author of The Nvidia Way and a senior technology writer at Barron's, who laid out a case in November on how falling computing costs will help features of AI become more profitable for companies.

"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," added Burry.

What would change his mind about AI valuations? "The biggest surprise that would cause me to recalibrate would be autonomous AI agents displacing millions of jobs at the biggest companies," said the author of the hugely popular Substack publication, Cassandra Unchained.

"Another would be application-layer revenue hitting $500 billion or more because of a proliferation of killer apps," he said. For now though, he expects Nvidia's chips will last up to six years and the need for those waning, or they last just two to three, with hyperscalers' earnings collapsing and "private credit getting destroyed."

Read: The real AI bubble may be in the private market

He also said that generative AI and LLMs are so expensive it's hard to understand the profit model.

Shares of Nvidia and Palantir are basically flat to start the year. Nvidia stock rose 38% over the last 52 weeks as Palantir registered a triple-digit gain.

Read: Why this new Palantir bull says the stock is worth its hefty price

Also read: These 8 stocks could form the backbone of AI as chips get more powerful

-Barbara Kollmeyer

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January 12, 2026 09:42 ET (14:42 GMT)

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