Does Michael Burry Know Something Wall Street Doesn't? As the S&P 500 Climbs, the Investor of "The Big Short" Fame Issues a Fresh Warning.

The S&P 500 got off to a rough start this year, finishing the first quarter with a decline of 4.6%. This was as concerns mounted regarding turmoil in Iran and as investors worried about the strength of the artificial intelligence (AI) revenue opportunity -- AI stocks had driven the major benchmark higher in the three previous years and helped keep the bull market going strong.

In recent weeks, the S&P 500 has rebounded, recovering its positive momentum -- and AI stocks once again have led the way. This is amid hopes for a peaceful resolution to the war in Iran, and as a new batch of corporate earnings buoyed investor sentiment. One big investor, in particular, however, isn't buying into the AI optimism.

Michael Burry, known for his billion-dollar bet against the U.S. housing market in the early 2000s, today is expressing concern about something he's seeing in the current market. Does this top investor know something Wall Street doesn't? As the S&P 500 climbs, he's issuing a fresh warning...

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Burry's Big Short

So, first, let's consider why investors sit up and take notice when Burry shares his thoughts on investing. As mentioned, Burry, predicting that mortgage defaults would multiply as interest rates soared and bring down the value of assets linked to them, bet against the U.S. housing market in the early 2000s. Amid the subprime market crash, he made $700 million for the clients of his hedge fund. The Big Short brought Burry's story to the big screen several years later, catapulting him to fame.

Of course, Burry hasn't been right on every occasion -- in the past, he's predicted crashes that never came to be. But considering Burry's solid understanding of financial markets and his focus on research, he clearly is an investor to watch.

Now let's take a look at his fresh warning to investors. Burry, in a Substack post on Friday, said that with AI being the key focus of the stock market right now, the market is starting to look like it did in the final months of the dot-com bubble.

"Stocks are not up or down because of jobs or consumer sentiment," he wrote in the post, according to CNBC. "They are going straight up because they have been going straight up. On a two letter thesis that everyone thinks they understand."

A pullback in AI stocks

So, does Burry know something Wall Street doesn't, and should you worry about a potential crash? It's important to note that the pullback in AI stocks earlier in the year didn't result in a crash, but it did lower the valuations of certain players, opening the door to solid buying opportunities. For example, AI superstar chip designer Nvidia saw its valuation drop to less than 24x forward earnings estimates from more than 40x -- this makes the stock a bargain considering the company's long-term prospects.

And recent earnings reports from AI giants show ongoing high demand for their products and services -- and suggest that this momentum will continue. As of Friday, 94% of tech companies have reported earnings above estimates, according to FactSet data.

Meanwhile, certain market experts see potential for more gains for tech stocks. Wedbush Securities analyst Dan Ives predicts the Nasdaq Composite will soar to 30,000 over the coming year amid earnings growth from tech companies. The index closed at 26,274.13 on May 11.

Applying AI to the real world

It's important to keep in mind that we're in the early stages of the actual application of AI to real-world problems, suggesting that revenue growth and stock performance have room to run. This is positive.

But it's clear that the market is heavily focused on AI, and the danger is that any potential slowdown or disappointment could result in a big decline. All of this means that it's wise to consider Burry's warning to investors and not get caught up in general excitement -- but this doesn't mean you should completely avoid AI stocks.

Instead, choose tech players that have proven themselves, have solid competitive positions, and offer strong prospects well down the road, once the early stages of the AI revolution have passed. These stocks should withstand bumps along the path -- and may have what it takes to offer you an AI win over the long term.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.