Legendary investor Michael Burry, who warned about the housing bubble, has sounded an alarm about an AI-driven stock market bubble. Burry focused on the ongoing artificial intelligence boom that has pushed some semiconductor companies like Sandisk and Micron to their all-time highs. 

He warned that the rally was resembling the dot-com bubble, which cost investors billions of dollars. Consequently, Burry has placed a short bet on the iShares Semiconductor ETF (NASDAQ:SOXX), which tracks the biggest names in the industry. 

Burry joins other popular investors who have warned against the stock market. For example, John Hussman, the head of Hussman Investment Trust, warned that the AI bubble will end in a "ball of flames." He argued that AI-driven profit expectations were highly optimistic. 

While Warren Buffett has not called the AI bubble, Berkshire Hathaway's recent actions suggest that it is expecting a pullback in the stock market. In its recent earnings, the company disclosed that its cash soared to $397 billion as it continued to offload its equities. 

The closely-watched Buffett Indicator, which compares the market capitalization of US equities and GDP, has jumped to a record high.

S&P 500 Index Is Still Cheap As Earnings Growth Surges

Still, despite the ongoing stock market bubble warnings, a crucial metric suggests that the S&P 500 Index is cheap. 

According to FactSet (FDS) data, the index is currently trading at a forward price-to-earnings ratio of 21, slightly above its five-year average of 19.

This metric is not particularly extreme, especially when compared against the ongoing earnings growth. With 89% of S&P 500 companies having reported their results, the average earnings growth stands at 27.7% — more than double the 13% analysts had forecast before the season began.

This marks the strongest earnings growth since the fourth quarter of 2021 — a remarkable achievement given that companies are still contending with elevated tariffs. Inflation has also jumped amid the ongoing US-Iran war, with OECD predicting that it will hit 4.2% if oil prices remain above $95. 

The technology sector has led the earnings growth, with Alphabet (GOOG), Netflix (NFLX), and Meta Platforms (META) having the largest positive difference between actual and estimated earnings. Consumer discretionary, energy, industrials, and materials have also contributed to the robust earnings growth.

Therefore, the strong earnings growth and the potential end to the US-Iran war may push the S&P 500 Index higher. Indeed, most Wall Street banks expect the index to continue soaring, with Oppenheimer being the most optimistic, with a $8,100 target. Deutsche Bank and Capital Economics have an $8,000 target, while JPMorgan sees it hitting $7,500.