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Wall Street is on edge tonight. Michael Burry, the investor made famous by the film The Big Short, has put a date on what he calls big tech's AI reckoning, and the bond market is starting to agree with him. In a widely read Substack post published on September 24th, Burry warned that the biggest technology companies have signed what he called a 30-year mortgage on artificial intelligence, and that the write-offs could arrive in 2028 or 2029.
When those write-offs come, he wrote, the commitments may be so large that a relatively small loss has a bigger impact than anyone can now imagine. Burry's argument rests on the capital cycle. Heavy investment builds capacity, competition erodes returns, and eventually companies are forced to impair or write down their assets.
He pointed to the 1990s technology boom, when after the dot-com bust, depreciation and write-downs kept net investment for the S&P 500 negative for 12 straight quarters between 2003 and 2006. The numbers are staggering. Burry estimates that net capital investment by S&P 500 companies, meaning capital spending minus depreciation, reached 2.07% of United States GDP as of June 30th.
That is the highest level in nearly four decades, exceeded only by the aftermath of the March 2000 Nasdaq peak. His concern goes beyond the raw spending. Burry estimates that just five companies, Microsoft, Amazon, Alphabet, Meta, and Oracle, have accumulated roughly $3 trillion in purchase commitments, future leases, guarantees, construction in progress, and other exposures tied to AI infrastructure.
That figure is growing. According reports, the hyperscalers are on track to spend about $800 billion on capital expenditure this year, with annual spending expected to top $1 trillion next year. Burry wrote that the next few quarters will set still higher records, possibly eclipsing even the aftermath of the 2000 peak.
He broke down the commitments company by company. Alphabet, the parent of Google, drew the most attention, with Burry estimating nearly $900 billion in off-balance-sheet exposures, including circular deals that fund AI firms which then buy its computing power. At Meta, Burry calculated roughly $700 billion in uncommenced leases and purchase obligations, a number he said could approach $1 trillion dollars broader commitments are included.
He noted these assets age faster than the telecom networks that were written down after 2000. Microsoft, he said, nearly tripled its uncommenced leases to more than 300 billion dollars while extending the upper end of its data center useful life range from 15 years to 25 years. He argued both moves shrink reported capital spending.
Amazon's leases and purchase commitments rose 81% in 9 months to about 267 billion dollars by his math, while its long-term debt doubled to 128.9 billion dollars. Oracle sits squarely in the crosshairs of Burry's timeline. The company has gone from a database giant to what Burry calls a landlord for AI computing with 664 billion dollars in contracted future revenue, according to CNBC, but also carries the most debt relative to earnings about 4.3 times EBITDA compared with under one times for the other four, according to Reuters.
Burry targeted 11.4 billion dollars in customer prepayments that Oracle collected last quarter, which carry what he called a significant financing component. Under accounting rules, argued, treating those prepayments as loans lets Oracle inflate reported future cloud growth while hiding the financing costs and interest expenses, keeping operating margins looking unnaturally clean.
Oracle pushes back. The company argues its chips A, well, according to the company, graphics processors renewed or resold last quarter went for a 20% premium, even though most were 4 years or older. Bulls maintain that persistent enterprise demand for AI capacity will absorb these capital costs well before any 2028 maturities hit, but Burry is not the only skeptic.
He's also raised concerns about how hyperscalers account for their Nvidia hardware, arguing they are stretching the useful life of AI chips beyond a realistic two to three-year cycle. That accounting choice, he claims, could understate industry-wide depreciation by about 176 billion dollars between 2026 and 2028.
Now, the credit markets are flashing their own warning. According to IFR, Thomson Reuters publication, credit default swaps on Oracle, Nvidia, Broadcom, and SpaceX have all climbed to record levels as investors reassess the sector's unprecedented borrowing binge. Oracle's five-year CDS spread widened to 257 basis points last week, the highest level since at least 2009, up from 182 basis points in mid-September.
That means it now costs about $257,000 a year to insure $10 million of Oracle debt against default. Nvidia CDS is hovering near an all-time high of 87 basis points, about 50 basis points above its level in early June. Even the world's largest company by market value is paying a record price for default protection, according to the report.
Broadcom CDS reached 133 basis points, the highest since at least 2009, more than three times its level in late May. IFR reports that Broadcom is backstopping $42 billion in senior secured loans that will help Anthropic pay for Broadcom's chips, a circular financing structure some investors find alarming.
SpaceX's CDS widened by 50 basis points to a record 197 basis points following reports the company is poised to issue another $40 billion in debt. Andrew Sheets, the global head of fixed income research at Morgan Stanley, told IFR that investors are exposed to these companies in many ways directly and indirectly, and so there's a risk premium associated with that.
He compared it to how bank credit spreads have tended to trade cheap for their rating. Adding to the pressure, Oracle sent a force majeure notice to the developer of its massive Project Jupiter data center in New Mexico, according to Bloomberg. The move could let Oracle delay payments if the site misses its 2028 start.
Oracle said the project remains on its planned schedule, but about $18 billion in Project Jupiter loans were quoted at just 89 to 91 cents on the dollar, Reuters reported citing the Financial Times. Burry himself has bet against the company. According to The Street, he disclosed an Oracle short position in August, and Oracle shares closed down 3.5% on September 24th as the cost of insuring its debt hit a record high.
The next checkpoint, The Street reports, is Oracle's October investor day, where management will face questions about its debt, its leases, and its AI spending. Meanwhile, the broader market had its own drama on Tuesday. PayPal shares jumped more than 4% on reports of renewed takeover interest, according to Seeking Alpha.
Microsoft co-founder Bill Gates warns that artificial intelligence is powerful enough to cause a billion deaths in comments widely covered on Tuesday. Tesla commenced deliveries of its semi truck, reaffirming a target of 50,000 units a year, and Brent crude jumped above $106 a barrel after a Houthi attack on Saudi sites, adding to inflation pressure just as investors brace for the next round of market-moving news.
For now, Burry's warning hangs over the market like a storm cloud. The bond market rarely panics early, but when it starts charging record prices to insure the world's most valuable companies, equity investors tend to pay attention. This is not financial advice. We are simply reporting what the markets and the man who called the housing crash are telling us.
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