Highlights

Michael Burry, a prominently known figure for his role in 'The Big Short', has recently highlighted concerns regarding some major technology companies. He claims that these firms are using aggressive accounting strategies to enhance their profits amid the AI boom. One significant point he emphasizes is how depreciation is allegedly understated, thus artificially boosting earnings. This insight poses a challenge to the transparency of reported profits in the tech industry. Burry’s focus includes companies like Oracle and Meta Platforms, projecting potential overstatement of earnings by up to 27% and 21%, respectively, by 2028.

Sentiment Analysis

• The sentiment around this accusation is quite mixed, as it combines serious allegations with potential industry implications.
• There's a measure of skepticism due to the challenge in proving such claims, given the leeway companies enjoy in estimating asset depreciation.
• Investors and industry watchers are closely monitoring these allegations for further developments, especially considering Burry's influential market presence.

Article Text

Michael Burry, the investor famed for his success in 'The Big Short', has surfaced with pointed allegations against some of America's tech titans. He asserts that these companies are overstating their profits derived from the surge in artificial intelligence technologies. In particular, Burry suggests that these companies, which he terms 'hyperscalers', are employing aggressive accounting tactics by underestimating their depreciation expenses. This is purportedly done by projecting longer life spans for hardware investments, such as chips, than realistically plausible.

Burry’s critique was made public through a post on X, highlighting a suspected trend where tech companies may purchase Nvidia chips and servers on a short lifecycle but then extend the expected utility duration on their books. This, according to Burry, inflates the profit figures these companies report, a situation he equates to historical instances of financial manipulation. Notably, he singles out Oracle and Meta Platforms for potentially overstating profits significantly by 2028.

This key insight significantly impacts the understanding of AI-related investments and urges a reevaluation of reported financials from leading tech enterprises. Although CNBC has reached out for comments, Oracle and Meta have yet to respond, while Nvidia declined to comment.

Burry brings to light the flexibility allowed under GAAP, whereby companies can defer the cost of large-scale assets like semiconductors by spreading them as yearly expenses. However, discrepancies can occur if the lifespan of these assets is overestimated, leading to reduced depreciation expenses influencing the bottom line.

This development comes amidst Burry's recent disclosure of put options against AI-favorites Nvidia and Palantir Technologies, amounting to significant notional values. The move drew reactions within the industry, including Palantir CEO Alex Karp, who reacted strongly against Burry's positions.

Key Insights Table