'Big Short' investor Michael Burry says a big threat to the AI boom is lurking in private credit

Investor Michael Burry warned that AI-linked debt securities held by private equity-owned insurance companies pose a systemic risk, with higher interest rates potentially triggering a crisis. Burry said the 10-year Treasury yield at 4.68% is unsustainable for private equity firms, and a blowup could leave taxpayers exposed through state guaranty programs.

'Big Short' investor Michael Burry says a big threat to the AI boom is lurking in private credit Business Insider https://www.businessinsider.com Michael Burry flagged risks he sees among PE-owned insurance companies that have amassed large holdings of debt securities tied to the AI boom. - Michael Burry sees problems for AI hiding in a corner of the private credit universe. - "The Big Short" investor said that AI-linked credit holdings at PE-owned insurers pose a risk. - Higher rates are the catalyst that could spark an upheaval, Burry said. Famed investor Michael Burry says that there's a growing risk of problems in AI-linked debt securities that have piled up in a corner of the private credit universe. "The Big Short" investor's latest warnings point to problems he sees among private equity-owned insurers and the riskier, illiquid credit instruments that they've been amassing on their balance sheets in recent years. Burry shared a paper https://papers.ssrn.com/sol3/papers.cfm?abstract id=7152239 on the trend of PE firms acquiring insurance companies and loading them up with asset-backed securities and the potential risks to the economy. In particular, Burry noted that much of these investments lately have been tied in some way to AI. "Those asset backed assets and structured securities are increasingly coming off data center and chip leases," Burry wrote https://michaeljburry.substack.com/p/short-thoughts-june-24-2026-offshore on his Substack. "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 has been vocal about his concerns related to the AI boom and the problems he sees percolating in the private credit industry. He's repeatedly called the AI market a bubble this year, and announced short bets https://www.businessinsider.com/why-michael-burry-big-short-nvidia-palantir-ai-bubble-stocks-2025-11 against some of the tech sector's most prominent names, including Nvidia https://markets.businessinsider.com/stocks/nvda-stock and Palantir https://markets.businessinsider.com/stocks/pltr-stock . In April, he said both private credit and private equity are nearing the "end of the road." https://www.businessinsider.com/michael-burry-jeff-gundlach-private-credit-markets-investing-jpmorgan-2026 Now, Burry wonders what could force a "reckoning" for the private credit firms that have rushed to finance https://www.businessinsider.com/how-private-equity-chasing-data-center-opportunity-blackstone-ares-apollo-2026-5 the AI infrastructure buildout. "Higher rates for longer could prove a catalyst," he said. "The 10-year Treasury closed today yielding 4.68%. That is not acceptable to the PE boys, who have been holding their collective breath for a long while now." He highlighted that the 10-year bond yield has risen sharply over the last five years, making much of the debt-fueled mechanisms at the heart of the private equity-private credit complex increasingly hard to sustain. The big risk that he flags, and which the authors of the paper that he cites are most concerned about, is that insurers are not like other companies. In the event of a blowup, insurance firms are backstopped by state guaranty programs, leaving taxpayers exposed. An AI meltdown blowing up the credit investments held by insurers could pose systemic risk, as the foundation is built on a system that "socializes losses more sharply than banking's federal deposit insurance," the authors of the paper write. Burry said that private equity firms have been "kicking the can down the road," but that won't be possible if rates rise further. "Nothing virtuous about this process," Bury added. "This is Private Equity kicking its final can down to the end of that very long road. Taxpayers wait there." Business Insider https://www.businessinsider.com/michael-burry-ai-private-credit-risks-insurance-companies-big-short-2026-7 Get AI news in your inbox Daily digest of what matters in AI.