Michael Burry Accuses Tech Companies of Misleading Accounting Practices
Investor Michael Burry, known for his involvement in “The Big Short,” is drawing attention once again. He recently accused major technology firms of employing dubious accounting methods to inflate their profits during the ongoing AI trend. This latest claim follows his assertions about an impending “AI bubble.”
In a recent post on X, Burry highlighted the practices of large cloud and AI infrastructure providers. He suggested that these “hyperscalers” are underestimating depreciation costs by projecting that their hardware will last longer than it actually does. This, he believes, leads to an artificial boost in reported earnings.
Burry expressed concern that extending the useful life of assets, while minimizing depreciation, represents a significant fraud in today’s financial landscape. He pointed out that substantial investments in Nvidia chips and servers over a typical 2-3 year cycle shouldn’t justify a longer lifespan for this technology. He estimated that these companies could underestimate depreciation by $176 billion between 2026 and 2028.
His claims suggest that this accounting strategy will have wide-reaching effects, leading to inflated profits across the industry. Notably, he singled out Oracle and Meta, predicting potential profit boosts of around 27% and 21%, respectively, by 2028.
However, proving these allegations could be complicated. Generally accepted accounting principles (GAAP) provide companies with some flexibility when estimating depreciation expenses. When firms invest heavily in assets like semiconductors or servers, they can distribute costs based on their assumptions of how quickly these assets will lose value. By treating their equipment as having a longer useful life, companies can lower their reported depreciation expenses.
Burry has indicated that he will provide more details on his findings on November 25th. Earlier this month, he raised alarms about an AI bubble and made his intentions to short major AI companies public.
His comments sparked a strong reaction from Palantir’s CEO, Alex Karp, who referred to Burry’s actions as “very weird” and “fucking stupid.” In the wake of these developments, Burry’s Scion Asset Management disclosed put options on both Nvidia and Palantir, suggesting a bearish outlook on these firms.
