Michael Burry is escalating his bet against the AI infrastructure buildout, warning that private equity and private credit face a reckoning within two to three years even if interest rates never move. Bull Theory reported Burry's argument that private credit now funds roughly half of all AI data centers, while more than 3,000 private equity firms haven't completed a single deal since 2021 — a backlog he frames as evidence of a market that has quietly stopped functioning normally even as headline AI enthusiasm stays high.
The warning follows Burry's short position on Caterpillar, which Bull Theory noted is now down 22% since he opened the short on June 30. Burry initiated that position at $1,060.98 after Caterpillar's stock had surged nearly 100% during the 2026 AI rally, pushing its price-to-sales ratio to a 30-year high for a heavy equipment manufacturer with no direct AI product line of its own.
Circular financing, not end-customer demand
Burry's broader thesis, drawn partly from a Bank for International Settlements report on AI-sector lending, is that a meaningful share of Nvidia's current and projected demand isn't coming from genuine end customers but from financing arrangements between AI labs, cloud providers, and their lenders that keep circulating capital through the same small set of players — arrangements he says are often kept off-balance-sheet and largely undisclosed. Private credit lending to the AI and IT sector has reportedly quadrupled over five years by that measure, concentrating risk in exactly the kind of lightly regulated corner of the credit market that surprised investors in past downturns.
Caterpillar became an unusual proxy for that thesis because its stock had been swept up in AI-adjacent enthusiasm — heavy machinery demand tied to data center construction — despite the company sitting several steps removed from the AI trade itself. Burry has drawn explicit comparisons between the current dynamic and the dot-com bubble of 1999-2000, and has also disclosed short positions against Nvidia, Tesla, and Applied Materials.
Related: Nvidia Pays Poolside $6B to Build a DeepSeek-Rivaling Open Model
A trade that doesn't need a rate hike to work
What distinguishes this warning from a typical rate-driven bear case is that Burry is explicitly decoupling his private credit call from Federal Reserve policy — arguing the stress builds regardless of what the Fed does next. That framing puts the burden of proof on AI capex spending itself: if data center demand and financing structures hold up as advertised, Burry's short book keeps losing; if the circular financing he describes unwinds, the private credit exposure he's flagging becomes the transmission mechanism for a much broader AI-adjacent selloff.
