Michael Burry, a renowned investor famous from The Big Short, recently attended the New York premiere of the film at the Ziegfeld Theater in New York City on November 23, 2015. Burry, who has recently stirred market attention with a tech short bet, is now taking issue with the accounting practices of America's leading technology firms amid the artificial intelligence boom.
In a post made on Monday on X, the founder of Scion Asset Management accused "hyperscalers"—the major providers of cloud and AI infrastructure—of minimizing their depreciation expenses by overestimating the lifespan of chips. He argued that this practice artificially boosts earnings and equated it to one of the prevalent modern financial misdeeds.
Burry claimed, "Understating depreciation by extending useful life of assets artificially boosts earnings - one of the more common frauds of the modern era." He explained that while these companies are significantly increasing capital expenditure by purchasing Nvidia chips and servers on a two to three-year product cycle, they unjustifiably extend the useful life of this equipment, which could misrepresent their earnings.
He projected that from 2026 to 2028, this accounting tactic would understate depreciation by roughly $176 billion, thus inflating industry-reported earnings. Burry pointed out Oracle and Meta Platforms as specific examples, suggesting their profits might be overstated by about 27% and 21%, respectively, by 2028.
While CNBC reached out to Oracle and Meta for responses and Nvidia declined to comment, Burry's allegations remain significant yet potentially difficult to validate due to the flexibility companies have in depreciation estimation. CNBC could not independently confirm Burry's claims about the companies' practices.
Generally accepted accounting principles, or GAAP, allow firms that pay upfront for substantial assets like semiconductors and servers, to apportion the cost as a yearly expense based on how quickly the asset is estimated to depreciate. By estimating a longer lifespan, companies can reduce the yearly depreciation impact on profits.
Burry, who previously capitalized on the subprime mortgage market crash before the 2008 financial crisis, observed this year's AI excitement as reminiscent of the late-1990s tech bubble.
Last week, Burry disclosed apparent new bets against AI leaders Nvidia and Palantir Technologies. According to a regulatory filing as of September 30, he holds put options with a notional value of about $187 million against Nvidia and $912 million against Palantir, though the exact strike prices and expiry dates were not disclosed.
Palantir's CEO, Alex Karp, reacted strongly to Burry's positions, labeling them "super weird" and "bats--- crazy." It remains uncertain whether Burry maintains these positions or if they were merely a hedge.
Following a 7% fall last week, Nvidia shares rebounded nearly 6% on Monday. Similarly, Palantir's shares increased nearly 9% on Monday after an 11% decline the previous week. Nvidia faced another dip on Tuesday.
Burry indicated in his X post that further details would be revealed on November 25, urging readers to "stay tuned."