Michael Burry Warns AI Boom Faces Risk From Private Credit Exposure

Investor flags insurance industry's AI infrastructure bets

Michael Burry, the investor who famously predicted the 2008 financial crisis, is raising alarms about a potential vulnerability in the AI infrastructure boom: the growing pile of AI-related debt securities held by private equity-owned insurance companies.

Burry shared analysis on his Substack highlighting how PE firms have been acquiring insurance companies and loading their balance sheets with asset-backed securities and structured credit instruments. Increasingly, these investments are tied to AI infrastructure — specifically data center and chip equipment leases, according to details first reported by Business Insider.

"This is where the possible contagion takes down the economy - by withdrawing funding for the data center buildout, which is also an increasing part of United States economic growth," Burry wrote.

The insurance backstop problem

The concern extends beyond typical private credit risk. Insurance companies operate under state guaranty programs that protect policyholders if insurers fail — effectively creating taxpayer exposure. This structure "socializes losses more sharply than banking's federal deposit insurance," according to a paper Burry cited.

If AI investments sour and trigger losses at these insurers, the fallout could create systemic risk with public funds ultimately on the hook. Burry describes private equity firms as "kicking the can down the road" with a process where "taxpayers wait there" at the end.

Rising rates compound pressure

Burry pointed to rising interest rates as a potential catalyst for problems. The 10-year Treasury yield closed at 4.68% when he wrote his analysis — a level he characterized as "not acceptable to the PE boys, who have been holding their collective breath for a long while now."

Higher borrowing costs make the debt-fueled mechanisms underlying private equity and private credit strategies increasingly difficult to sustain, particularly for firms that have been waiting for rate cuts to ease pressure on their portfolios.

Why it matters

The AI infrastructure buildout has become a significant driver of U.S. economic growth, with massive capital flowing into data centers and semiconductor capacity. If the financing mechanism supporting this expansion proves fragile — and if losses could cascade through insurance companies to taxpayers — the risk extends well beyond tech sector investors. The structure Burry describes creates a potential path for AI investment losses to become a broader economic problem through the insurance system.

Burry's broader AI skepticism

This warning fits Burry's recent pattern of AI market skepticism. He has repeatedly called the AI sector a bubble this year and disclosed short positions against prominent technology companies including Nvidia and Palantir. In April, he stated that both private credit and private equity are approaching the "end of the road."

The details were first reported by Business Insider's Samuel O'Brient.