Michael Burry Accuses Hyperscalers of Inflating AI Profits Through Depreciation

Michael Burry's recent accusations against major technology companies, specifically 'hyperscalers,' regarding their accounting practices, have sent ripples through the financial world. Burry alleges that these companies are artificially inflating their earnings related to AI by understating depreciation expenses. He claims they are extending the useful life of assets, particularly Nvidia chips and servers, beyond what is realistic, given the rapid product cycle of 2-3 years. This, according to Burry, leads to a significant understatement of depreciation, potentially inflating reported earnings across the industry by an estimated $176 billion between 2026 and 2028. He specifically calls out Oracle and Meta, suggesting their profits could be overstated by 27% and 21%, respectively, by 2028.

Burry's track record, including his prescient bet against subprime mortgages before the 2008 financial crisis, lends credibility to his claims. His warnings about AI enthusiasm resembling the late-1990s tech bubble further amplify concerns. The disclosure of his put options against Nvidia and Palantir, although their current status is unclear, underscores his conviction.

However, proving Burry's accusations will be challenging due to the leeway companies have in estimating depreciation. The lack of independent confirmation from CNBC adds another layer of complexity. Nevertheless, Burry's allegations warrant careful consideration, as they could expose vulnerabilities in the financial reporting of AI-driven companies and potentially trigger a market correction if proven true. The situation demands increased scrutiny of accounting practices within the AI sector to ensure transparency and prevent potential market manipulation.

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