Michael Burry, known for his role in “The Big Short,” is stirring up headlines again. He’s raising concerns about major tech companies, suggesting that they’re using aggressive accounting practices to inflate their profits amidst the artificial intelligence boom.
In a recent post on X, Burry claimed that large cloud and AI companies are underreporting how much their computing hardware depreciates. He argues that these firms are pretending their chips will last longer than they realistically can, thus boosting their earnings artificially. Burry said this kind of manipulation is a common modern fraud.
He estimated that from 2026 to 2028, this accounting tactic could lead to a $176 billion understatement in depreciation across the industry. Notably, he pointed fingers at Oracle and Meta, suggesting that their reported profits might be overstated by 27% and 21%, respectively, by 2028.
Many companies face scrutiny when it comes to how they account for large assets like servers and chips. Under Generally Accepted Accounting Principles (GAAP), businesses can spread the cost of these assets over their expected lifespan. If they claim a longer lifespan, their yearly expense for depreciation decreases, leading to more flattering earnings reports.
Burry’s voice isn’t the only one sounding alarms. In 2023, there have been comparisons between the current excitement around AI and the tech bubble of the late 1990s. Experts in finance have been cautious, warning that market sentiment can shift quickly—leading to potential downturns when reality sets in.
Recently, Burry disclosed he had taken positions against AI-focused firms such as Nvidia and Palantir, totaling around $1.1 billion. His moves have attracted reactions from industry leaders, including Palantir’s CEO Alex Karp, who called Burry’s bets “super weird.”
As of now, shares of Nvidia and Palantir have seen fluctuations, highlighting the volatile nature of the tech market. Burry hinted that more details would follow on November 25, suggesting this story is far from over.
To delve deeper into these financial practices, check out the insights provided by the Financial Accounting Standards Board (FASB) on depreciation methods and reporting.
In this dynamic landscape, both companies and investors need to remain vigilant. As tech continues to evolve, understanding these accounting strategies can be vital for making informed decisions.
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