The moment Michael Burry announced his bearish bets on some of the biggest winners of the AI trade, including the likes of Nvidia (NASDAQ:NVDA | NVDA Price Prediction), it seemed like a bursting of the bubble was inevitable. Of course, even the great Michael Burry of The Big Short fame can’t be right all of the time. And while he’s raised some intriguing bear points (such as the GPU depreciation schedule and other accounting practices that might be a bit on the aggressive side) about the big tech innovators, which seem to be going all-in on the AI boom, I’m not so sure such finer details matter as much in the grander scheme of things, provided the AI revolution lives up to the high ROI hopes.
Undoubtedly, we’re going to need to see greater monetization of the technology in the new year. Otherwise, the path may very well be lower for the AI names, especially the ones that have enjoyed triple-digit percentage gains in just over a year. Personally, I don’t think an AI bubble bust is the only way the boom has to end. Additionally, I think Burry could make a fortune from his bearish bets on Nvidia and Palantir (NASDAQ:PLTR), without the entire trade going up in smoke.
Overheated AI stocks might fizzle out slowly, rather than crash hard suddenly
How? Frequent rolling corrections concentrated in the AI stocks might be another way to “correct” moments of excess enthusiasm and pockets of severe overvaluation. Undoubtedly, perhaps the corrections could prove more isolated, punishing names like Palantir, as big-tech stars with more modest valuation multiples proceed higher. Undoubtedly, it seems like Google parent Alphabet (NASDAQ:GOOG) remains an AI trade that may very well be spared from future rolling corrections as they happen.
The stock remains quite cheap and might be a place to rotate profits from the massive winners, like Nvidia, for a shot at continued performance. Given the slowed momentum in shares of Nvidia, perhaps the fresh slate of 2026 will offer the means for a new class of leaders, many of whom might be more obvious than you’d think. Undoubtedly, the Magnificent Seven stars (especially Alphabet) stand out as having what it takes to lead the way for the AI trade moving ahead.
For now, it seems like the AI trade is already experiencing a slow, steady correction of sorts, with some stocks, including Oracle (NASDAQ:ORCL), suffering peak-to-trough declines in excess of 45%. To put it simply, that’s not a light pullback; it’s more of a crash, but one that’s been contained by the fast-running AI data center innovators, especially the ones with more than their fair share of debt.
Arguably, a correction is already working its way through parts of the AI trade
Undoubtedly, given the relative strength in Google following its applaud-worthy Gemini 3.0 launch, we’ve witnessed a rotation in the AI scene. Perhaps the dragging data center plays and AI-driven software-as-a-service stocks have been put aside in favor of Google, and some of the better-performing plays within the Mag Seven. Could it be that 2026 is a year where the Mag Seven names start outperforming the broad markets again?
More power in the hands of the AI giants may very well be in the cards, as circular dealmaking leads to greater efficiencies across the behemoths that are already enjoying economies of scale. Add the acquisition of AI startups into the equation, and I think it’s hard to dismiss big tech, especially the Mag Seven, as being in a bubble, especially given that they have what it takes to lead the AI monetization story forward, given how easily they can enhance and reinvent their existing offerings with AI taking center stage.
The path forward for the AI trade
Undoubtedly, perhaps 2026 is the year when it’s all about AI-first apps, rather than a bit of sprinkling of AI in existing apps. The big question is whether such an approach will convince the masses to pay up.
Given the added value of AI-driven apps and agents, perhaps there is hope for the AI trade as the latest “correction” works its way through. Given recent trends, including the broadening of the market strength (the equal-weight S&P 500 gained nearly 10% in 2025), perhaps it’s time to consider other ways to remove froth in the AI trade.
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