‘Big Short’ investor Michael Burry accuses AI hyperscalers of artificially boosting earnings

Michael Burry, the investor who recently roiled the market with short tech bets and became famous for “The Big Short,” accuses some of America’s biggest tech companies of using aggressive accounting to boost profits from the artificial intelligence boom.

Inside X A post on MondayThe founder of Scion Asset Management claimed that “hyperscalers” — major cloud and AI infrastructure providers — are understating depreciation expenses by predicting that chips will have a longer life cycle than is realistic.

“Understating depreciation by extending the useful life of assets artificially increases earnings is one of the most common frauds of the modern era,” Burry wrote. “Dramatically increasing capex through purchasing Nvidia chips/servers over a 2-3 year product cycle should not result in extending the lifespan of computing equipment. But that’s exactly what all hyperscalers do.”

Burry estimated that the accounting maneuver would understate depreciation by about $176 billion from 2026 to 2028, which would inflate reported earnings across the industry. He came forward Seer And Meta The platforms say their profits could be overstated by roughly 27 percent and 21 percent, respectively, by 2028.

CNBC has reached out to Oracle and Meta for comment. Nvidia declined to comment. Burry’s accusation is serious, but may be difficult to prove given the latitude given to companies in estimating depreciation. CNBC could not independently verify that this practice was carried out by the companies.

Semiconductors, servers, etc. When paying upfront for a large asset such as an asset, a company is allowed under generally accepted accounting principles (GAAP) to allocate the cost of that asset as an annual expense based on the company’s estimate of how fast that asset is depreciating in value. If companies anticipate a longer life cycle for the asset, they can reduce the resulting annual depreciation expense.

Burry, who bet against subprime mortgages before the 2008 financial crisis, warned that AI enthusiasm this year is akin to the tech bubble of the late 1990s.

Last week, Burry revealed seemingly new bets against AI favorites Nvidia and Palantir Technologies. It disclosed put options with a notional value of approximately $187 million against Nvidia and $912 million against Palantir as of Sept. 30, according to a regulatory filing. Strike prices or expiration dates of the contracts were not specified in the application.

The statement sparked a harsh response from Palantir CEO Alex Karp, who called Burry’s bets “super weird” and “crazy.” It is unclear whether he still holds these positions or whether they are merely a hedge.

Nvidia shares rebounded about 6 percent on Monday after falling 7 percent last week. Palantir shares gained nearly 9% on Monday, following an 11% selloff last week. Nvidia fell again on Tuesday.

Burry said in the X post that “more details” would be coming on November 25 and that readers should “stay tuned.”