JPMorgan Says Michael Burry Is Dead Wrong About AI

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JPMorgan Chase (JPM) projects the global AI ecosystem needs $650B in annual revenue for a 10% return over five years.

JPMorgan argues corporations will shoulder most AI costs through productivity gains rather than passing fees to consumers.

Michael Burry just closed his Scion Asset Management fund after struggling to grasp AI-driven valuations in the current market.

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Michael Burry first grabbed headlines for his bold short against the U.S. housing market in the mid-2000s, predicting its collapse and profiting massively when the subprime mortgage crisis hit in 2008. That trade — immortalized in the book and movie “The Big Short” — turned him into a Wall Street legend.

But Burry had been a sharp investor long before, starting as a value-oriented trader in the 1990s through his Scion Capital hedge fund, where he focused on undervalued stocks and contrarian bets. His medical background as a neurologist added an analytical edge to his market views. Recently, Burry shocked investors by placing large bearish bets against Nvidia (NASDAQ:NVDA) and Palantir Technologies (NYSE:PLTR), buying put options that signaled his skepticism toward the artificial intelligence (AI) boom. These moves suggested he sees overvaluation in AI stocks amid hype.

Yet, analysts at JPMorgan Chase (NYSE:JPM) have pushed back, arguing Burry is dead wrong about AI’s potential.

JPMorgan’s recent report dives into the economics of the AI infrastructure build-out, painting a picture of sustained expansion rather than a bubble ready to burst. While the bank didn’t name Burry directly, its optimistic outlook counters his bearish stance on AI-related stocks. The analysis focuses on the capital expenditures needed for AI and the returns they could generate.

At the core is a sensitivity analysis showing the revenue required to achieve various hurdle rates on AI investments over the next five years. For a 10% return, the global AI ecosystem would need about $650 billion in annual revenue, equating to roughly 0.58% of global GDP.

To put this in perspective, that’s like every iPhone user from Apple (NASDAQ:AAPL) paying $35 per month or every Netflix (NASDAQ:NFLX) subscriber shelling out $180 monthly — figures that sound steep at first glance.

But JPMorgan emphasizes that consumers won’t foot the entire bill. Instead, corporations and institutions, as key beneficiaries of AI-driven productivity gains, will shoulder most of the costs. The report notes that AI is already delivering value beyond these hypothetical fees through efficiency improvements in sectors like healthcare, finance, and manufacturing. For instance, businesses are using AI for automation, data analysis, and decision-making, which could boost output without proportional cost increases.

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The bank projects massive capex in data centers, chips, and software, driven by demand from hyperscalers and enterprises. This build-out isn’t speculative; it’s backed by real-world adoption, with AI models improving rapidly and integrating into everyday operations.

JPMorgan argues this creates a virtuous cycle: higher investments lead to better technology, which in turn drives more revenue. They warn against betting against AI now, as the industry is in an early growth phase with room to scale. Short positions, like Burry’s, risk missing out on this momentum, especially as valuations reflect future earnings potential rather than current metrics.

Breaking down the analysis further, JPMorgan illustrates scenarios for hurdle rates from 4% to 14%. At a lower 6% return, required annual revenue drops to $360 billion (0.32% of GDP), akin to $19.23 monthly from iPhone users. At 12%, it jumps to $810 billion (0.73% of GDP). These projections highlight AI’s sensitivity to returns but also its feasibility. The bank cheekily points out that individuals already gain more than $35 monthly in productivity from AI tools, suggesting the value proposition is strong.

This counters skeptics who see AI as overhyped. Instead, JPMorgan sees it as a transformative force, comparable to past tech revolutions but with faster adoption. For stocks like Nvidia and Palantir, this means continued upside as they supply critical AI hardware and software.

In a twist, Burry might now be aligned more with JPMorgan’s view. He recently announced the closure of his Scion Asset Management fund, returning capital to investors because he struggles to grasp AI-driven valuations in this market.

While he’s not exiting investing entirely — likely shifting to private bets — his decision to step back from managing others’ money hints at frustration with the “irrational exuberance” fueling AI stocks. This era, marked by soaring prices despite high capex, echoes past bubbles, but Burry’s retreat suggests he recognizes the demand might be real and persistent, making short bets riskier than ever.

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