TLDR
- Michael Burry accuses hyperscalers like Meta and Oracle of extending the estimated lifespan of AI chips to reduce depreciation costs and boost reported earnings
- Burry estimates this practice could understate depreciation by $176 billion between 2026 and 2028 across major tech companies
- He claims Meta could overstate earnings by 21% and Oracle by 27% by 2028 using this accounting method
- Burry recently disclosed put options worth $187 million against Nvidia and $912 million against Palantir as of September 30
- Jim Chanos, who shorted Enron, has raised similar concerns about AI infrastructure spending and chip depreciation
Michael Burry, the investor known for predicting the 2008 financial crisis, has accused major technology companies of using questionable accounting practices. He claims they are artificially inflating their earnings from AI investments.
In a post on X, Burry said hyperscalers are understating depreciation expenses on AI chips and servers. Hyperscalers are major cloud and AI infrastructure providers like Meta, Oracle, Microsoft, Amazon and Google.
The Scion Asset Management founder explained the alleged problem. Companies are buying Nvidia chips and servers that have a two to three year product cycle. However, these companies are extending the estimated useful life of this equipment on their financial statements.
“Understating depreciation by extending useful life of assets artificially boosts earnings – one of the more common frauds of the modern era,” Burry wrote. He said this is happening across all major hyperscalers.
When companies buy expensive assets like semiconductors and servers, they can spread the cost over time. This is done through depreciation expenses under generally accepted accounting principles. If companies estimate a longer lifespan for equipment, they can report lower yearly depreciation costs.
This practice directly increases reported earnings. Burry estimates the accounting method will understate depreciation by about $176 billion from 2026 through 2028. He specifically named Oracle and Meta in his post.
According to Burry’s calculations, Oracle could overstate profits by roughly 27% by 2028. Meta could overstate earnings by about 21% during the same period.
CNBC reached out to Oracle and Meta for comment. Nvidia declined to comment. The publication could not independently confirm this accounting practice was being used.
Similar Warnings From Other Investors
Jim Chanos, who famously shorted Enron before its collapse, has raised similar concerns. Chanos recently questioned the spending levels on AI infrastructure among major tech companies.
The Kynikos Associates founder said he worries about the billions being spent on AI hardware. Amazon, Meta, Microsoft, Alphabet and Apple are on track to spend $349 billion on capital expenditures this year. Much of this money goes toward AI infrastructure.
“I’m starting to worry there’s so much spending right now on the AI physical boom,” Chanos said. He expressed concern about the economic returns on these investments.
Chanos pointed out that chips depreciate over about two years. He said companies will need to make difficult decisions about monetizing AI within a year or two.
Recent Trading Activity
Burry disclosed new positions last week through a regulatory filing. As of September 30, he held put options against Nvidia with a notional value of $187 million. He also held puts against Palantir worth $912 million.
The filing did not specify strike prices or expiration dates. It remains unclear whether Burry still holds these positions or if they were hedges.
Palantir CEO Alex Karp called Burry’s bets “super weird” and “bats— crazy.” Nvidia shares dropped 7% last week before rebounding 6% on Monday. Palantir fell 11% last week then jumped 9% on Monday.
Burry said more details would come on November 25. He has previously compared AI enthusiasm to the late-1990s tech bubble.
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