Michael Burry’s 2026 Warning Is Not About Panic. It Is About Price.

Michael Burry is famous because he saw serious problems in the United States housing market before the 2008 financial crisis. That history makes people pay attention when he warns about a market bubble. But the useful lesson is not “copy Burry” or “sell everything”. The useful lesson is simpler: when prices rise much faster than business value, future returns become more fragile.

In late 2025, Burry moved away from traditional hedge-fund reporting. Reuters reported that Scion Asset Management’s registration was terminated in November 2025, meaning it would no longer have the same public reporting obligations to regulators. Burry said in a letter that his way of valuing securities was no longer in sync with the market. Since then, much of the public evidence about his thinking has come from his own Substack posts rather than normal quarterly fund filings. (1)

The main point of Burry’s 2026 warning is not that a crash must happen tomorrow. His warning is about valuation. Valuation means the price you pay compared with what the asset can reasonably earn for you. A good business can become a bad investment if the price is too high. A weak business can sometimes become a good investment if the price is low enough. Price matters because investment return comes from the gap between what you pay and what the business later delivers.

One of Burry’s concerns is that parts of the technology market have become extremely stretched. He has pointed to data showing that the ten best-performing stocks in the Nasdaq 100 rose by an average of 784 percent over the previous year. By comparison, the ten best-performing Nasdaq 100 stocks in the year before the March 2000 dot-com peak rose by an average of 622 percent. That does not prove that today must repeat 2000. But it does show that the current move is historically extreme. (2)

Here is what those percentages mean in plain language. Suppose you invested £100. A 784 percent gain means:

\[£100 \times (1 + 7.84) = £884\]

Your £100 has become £884. Your profit is £784.

A 622 percent gain means:

\[£100 \times (1 + 6.22) = £722\]

Your £100 has become £722. Your profit is £622.

So when the best-performing modern Nasdaq 100 stocks are up 784 percent, compared with 622 percent before the dot-com peak, the issue is not just that stocks have gone up. The issue is that some stocks have gone up by an extraordinary amount in a short time. When that happens, investors are usually assuming a very bright future. If the future is merely good rather than perfect, the share price can still fall.

The second concern is earnings quality. Earnings are a company’s profit. A common valuation measure is the price-to-earnings ratio. It tells us how much investors are paying for each £1 or \$1 of annual profit.

The formula is:

\[\text{price-to-earnings ratio} = \frac{\text{market value}}{\text{annual earnings}}\]

For example, if a company is valued at £100 million and earns £5 million per year:

\[£100\text{ million} \div £5\text{ million} = 20\]

That means investors are paying £20 for every £1 of annual profit.

A high price-to-earnings ratio is not automatically bad. A fast-growing company may deserve a higher number. But the higher the number, the more future growth is already built into the price. If the company disappoints, the share price can fall heavily because investors were paying for perfection.

Burry’s deeper argument is that some technology earnings may look better than they really are because of stock-based compensation. Stock-based compensation means employees are paid partly in shares rather than only in cash. Some people treat this as if it is not a real cost because cash does not immediately leave the bank account. Burry’s view is that this is still a real cost to shareholders. If the company issues new shares to employees, existing owners are diluted. If the company buys back shares to cancel out the dilution, cash is being spent. Either way, shareholders pay. Business Insider reported that Burry argued Nasdaq 100 earnings were overstated by nearly 20 percent under normal accounting, and that Wall Street forward earnings estimates were 42 percent higher than his estimate of properly adjusted owners’ earnings. (3)

The calculation is easy to understand. Suppose a company appears to trade at 25 times earnings.

\[\text{market value} = £100\] \[\text{reported earnings} = £4\] \[\text{price-to-earnings ratio} = £100 \div £4 = 25\]

Now suppose the true owner earnings are not £4, because some costs have not been properly reflected. Suppose the real owner earnings are £3.33.

\[\text{market value} = £100\] \[\text{true owner earnings} = £3.33\] \[\text{true price-to-earnings ratio} = £100 \div £3.33 \approx 30\]

So the same company has not become cheaper or more expensive because the share price changed. It became more expensive because the earnings number changed. This is why earnings quality matters. If the profit number is too generous, the valuation looks safer than it really is.

Burry has also reportedly argued that the Nasdaq 100 may be trading closer to 43 times earnings after his adjustments, rather than around 30 times on the headline numbers. The exact number is less important than the logic. If the real profit is lower than the reported profit, then the true valuation is higher. A market that looks expensive may actually be even more expensive than it first appears. (4)

This explains why Burry has focused on artificial intelligence and semiconductors. A semiconductor is a chip used inside computers, phones, data centres, cars and many other machines. The artificial intelligence boom has increased demand for advanced chips, especially for data centres. But when investors believe one sector is the future, they can push prices far above what even strong business performance can justify.

Burry’s public Substack preview from 4 May 2026 shows that he added to put options on SOXX, the iShares Semiconductor exchange-traded fund, with a January 2027 expiry and a 330 strike price. An exchange-traded fund is a basket of securities that trades like a normal share. SOXX is a basket focused on semiconductor companies. (5, 6)

A put option is a contract that gives the owner the right to sell something at a fixed price in the future. It is often used either as protection or as a bearish bet. Investor.gov describes options as contracts giving the buyer the right, but not the obligation, to buy or sell a security at a fixed price within a specified period. (7)

The formula for the basic value of a put option at expiry is:

\[\text{put value} = \max(\text{strike price} - \text{market price}, 0)\]

Suppose the strike price is \$330.

If the fund falls to \$250:

\[\$330 - \$250 = \$80\]

The put has value because it gives the owner the right to sell at \$330 when the market price is only \$250.

If the fund stays at \$400:

\[\$330 - \$400 = -\$70\]

The value cannot be negative, so the basic value is \$0.

This is why options are dangerous to copy blindly. A put option can make a lot of money if the fall happens before the option expires. But if the market rises, stays flat, or falls too late, the option can lose most or all of the money paid for it. Burry may use options as part of a wider portfolio strategy. That does not mean a normal investor should copy the trade.

The more important lesson is not the specific option. The lesson is that Burry appears to be positioning for lower future returns in the most expensive parts of the market, while still looking for value elsewhere. That distinction matters. Being cautious on expensive artificial intelligence and semiconductor names is not the same as saying every stock is bad.

Cash is the other part of the story. Many investors think cash is lazy because it does not rise like shares in a bull market. But cash has a special value: it gives you the ability to act later. If prices fall, the investor with cash can buy. The investor who is already fully invested has less flexibility.

This is how disciplined investors often think. Cash is not only a low-return asset. It is also an option. It gives you the right, but not the obligation, to buy assets later if prices become attractive.

Berkshire Hathaway provides a useful comparison. In its first-quarter 2026 report, Berkshire showed \$51.478 billion of cash and cash equivalents in its Insurance and Other businesses, \$339.261 billion of short-term United States Treasury bills, and \$6.644 billion of cash and cash equivalents in its Railroad, Utilities and Energy businesses. Added together: (8)

\[\$51.478\text{ billion} + \$339.261\text{ billion} + \$6.644\text{ billion} = \$397.383\text{ billion}\]

That is about \$397.4 billion of cash, cash equivalents and short-term Treasury bills on the balance sheet. Berkshire also bought \$15.938 billion of equities and sold \$24.087 billion of equities during the first quarter of 2026. Net equity selling was therefore:

\[\$24.087\text{ billion} - \$15.938\text{ billion} = \$8.149\text{ billion}\]

So Berkshire was a net seller of equities by about \$8.1 billion in that quarter.

A United States Treasury bill is a very short-term loan to the United States government. It is usually treated as close to cash because it matures quickly and is backed by the government. Berkshire’s large Treasury bill position shows the same broad discipline: when prices are not attractive enough, holding liquid low-risk assets can be rational.

This does not mean Berkshire and Burry are doing exactly the same thing. They are not. Berkshire is a huge operating company with insurance, rail, energy and many other businesses. Burry is a concentrated investor known for contrarian ideas and short positions. Their tools are different. But the shared lesson is still useful: serious investors do not have to chase every rally.

The inflation backdrop also matters. In April 2026, the United States Bureau of Labor Statistics reported that the Consumer Price Index for all urban consumers rose 3.8 percent over the previous 12 months. Energy rose 17.9 percent over the same period, and gasoline rose 28.4 percent. (9)

Inflation matters because it affects interest rates. If inflation is high, central banks are less likely to cut rates aggressively. Higher interest rates make future profits worth less today.

The formula for this is called present value:

\[\text{present value} = \frac{\text{future cash}}{1 + \text{interest rate}}\]

Suppose a company will give you \$100 one year from now.

If the interest rate is 2 percent:

\[\$100 \div 1.02 = \$98.04\]

If the interest rate is 5 percent:

\[\$100 \div 1.05 = \$95.24\]

The future \$100 is worth less today when the interest rate is higher. This is especially important for growth stocks, because much of their value depends on profits expected many years in the future. If interest rates stay high, expensive growth stocks have less room for valuation error.

The practical conclusion is not “sell everything”. That would be too crude. The better conclusion is this:

Do not confuse a rising price with a safer investment. When a stock has gone up sharply, the risk may actually be higher, not lower, because more optimism is already included in the price.

Do not rely only on headline earnings. Ask whether the profit belongs to shareholders after all real economic costs, including share-based pay and dilution.

Do not dismiss cash. Cash can be a rational asset when valuations are stretched, especially if it earns a reasonable return in Treasury bills or high-quality short-term instruments.

Do not copy complex options trades without understanding the full structure. A put option can be useful, but it can also expire worthless.

Most importantly, do not treat any famous investor as a prophet. Burry has been early before. He has also been wrong before. But the value of his current warning is not that it gives a precise crash date. The value is that it forces investors to ask the correct question:

Am I being paid enough for the risk I am taking?

That is the heart of investing. Not excitement. Not fear. Not headlines. Price, value, risk and patience.

Michael Burry's 2026 Warning Is Not About Panic. It Is About Price.

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