AI Bubble Warning and a 10-15% Stock Market Pullback: Why Michael Burry’s Short Bet and Wall St CEOs’ Caution Matter in 2025

Discover how Wall St CEOs’ caution and Michael Burry’s short bet against AI stocks signal a 10-15% correction risk in 2025 — plus what investors should check now.

The Shadow of the AI Bubble – When Wall St CEOs and Michael Burry Speak

On November 4, 2025, U.S. equity markets showed signs of strain. The S&P 500 slid 1.17% and the Nasdaq Composite declined by more than 2%.
What triggered this? Two key developments occurred nearly simultaneously: First, Wall Street heavyweights Morgan Stanley and Goldman Sachs issued public warnings that a 10-15% market correction could be overdue.
Second, Michael Burry—a renowned contrarian investor—disclosed large put options targeting Nvidia and Palantir, both central to the “AI bubble” narrative.
Combined, these signals suggest that the current tech rally may be underpinned by excess optimism and vulnerable to a swift reversal.

Two Alarms at the Peak: Wall St CEO Caution and Burry’s AI Short Bet

In a high-profile investment summit in Hong Kong, Morgan Stanley’s CEO told attendees that “we should welcome the possibility that there would be drawdowns of 10-15% that are not driven by a macro cliff effect.”
Goldman Sachs’ CEO emphasized that sentiment shifts—rather than macro shocks—could spark a significant correction.
On the same day, Michael Burry’s hedge fund disclosed put options amounting to roughly $187 million against Nvidia and $912 million against Palantir—together representing around 80% of his portfolio.
The convergence is striking: one route through institutional leadership warning of systemic risk; another through an investor historically known for spotting bubbles. Their alignment raises a compelling question: Is the AI bubble now morphing into a broader market risk?

Data Review: Valuation Stress, Sector Concentration & Pullback Risk

Together, these figures point to more than a minor pullback. They hint at structural vulnerabilities: overextended valuations, heavy sector concentration, and targeted bearish bets. Markets that once seemed powered by “growth at any cost” might be entering a phase where sustainability matters more than momentum.

Expert Insight: Why the Tipping Point Might Be Near

“Valuations were pretty stretched and earnings good—but not great.” — Chuck Carlson, Horizon Investment Services.
“Sometimes we see bubbles. And sometimes the only winning move is not to play.” — Michael Burry (public note)
These quotes reflect the underlying mindset shift: When confidence turns into complacency, the margin for error shrinks. In an environment where AI stocks have soared on lofty expectations, any sign of execution miss or slowing demand could trigger a rapid repricing.

AI Investment Boom vs. Cash-Flow Stress: The Internal Crack in the Bubble

The AI investment wave has produced eye-catching numbers: A $38 billion cloud computing contract between OpenAI and AWS, projections of nearly $2.8­trillion in AI capital expenditures by 2029, and Nvidia nearing a $5 trillion market cap.
Yet this frenzy also raises a critical question: When will all that spending convert into profits?
Large-scale AI infrastructure builds demand high upfront costs, long payback periods, and increasing competition. In a high-rate environment, the burden of capital costs becomes more visible. Essentially, growth isn’t enough—survivable cash-flows will matter even more.

Broader Impacts: What This Means for Economy, Industry and Investors

Economy

Tech-led expansion has been a pillar of U.S. growth. A sharp correction in tech and AI sectors could ripple into corporate investment, hiring and consumer sentiment.

Industry

While data-centers, chip fabrication and network infrastructure remain strategic growth areas, companies with overstretched pricing models (especially in software/AI) risk disappointment.

Investors

Portfolio construction must now account for concentration dangers. With the top few “mega-cap” stocks carrying outsized weight, a stumble in one can affect a broad swath of passive funds and indexed strategies. That translates into liquidity risk, flow reversals and higher volatility.

What’s Next: 6-24 Month Outlook & Strategic Checklist

What to watch:

• Quarterly earnings vs. expectations for Nvidia, Palantir and other key AI/tech names
• Announcements of large AI contracts or capital spending slow-downs
• Index concentration metrics and option market skew (put/call ratios)
• Valuation multiples (P/E, EV/EBITDA) and actual free-cash-flow (FCF) performance

Strategy ideas:

• Reduce exposure in overly concentrated growth portfolios; increase allocation to cash, short-duration bonds or value stocks.
• For high-valuation names, adopt split-buying or band-exit rules rather than “buy and hold” without risk controls.
• Consider sector rotation toward defensive segments (e.g., dividend stocks, low-volatility ETFs) until clearer fundamentals emerge.
• Maintain liquidity to act on buying opportunities should a pullback (10-15% or more) present a re-entry window.

The convergence of a high-profile short bet from Michael Burry and public warnings from Wall Street CEOs signals that the AI bubble may not just be a theme—it may be a systemic risk factor. Investors should shift focus from unchecked growth to durable fundamentals: valuation discipline, cash-flow health and portfolio diversification. Now is the time for thoughtful, not speculative, positioning.

Reference Links

• Reuters: “Goldman, Morgan Stanley CEOs warn of pullback in global equity markets”
• Business Insider: “’Big Short’ Michael Burry bet against Palantir and Nvidia”
• MarketWatch: “Michael Burry challenges the AI trade with big short bets on Nvidia and Palantir”