Michael Burry Just Exposed How Big Tech Is Inflating AI Profits

Over the past 2 years, Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT) person collectively committed astir $3 trillion to AI infrastructure. Microsoft unsocial plans $80 cardinal successful fiscal 2025 capex, mostly information centers; Alphabet raised its 2025 guidance to $75 billion; and Amazon’s AWS is connected gait for $100+ cardinal annually by 2026.

The stated goal: fastener successful dominance earlier rivals do. Wall Street cheers each upward revision, sending these stocks to repeated all-time highs. Earnings calls overflow with phrases similar “once-in-a-lifetime opportunity” and “land-grab phase.” Analysts present cook successful 20% to 30% unreality and AI gross maturation for the adjacent half-decade.

Yet beneath the euphoria is simply a quiescent accounting prime that is making those rosy numbers imaginable -- and 1 capitalist says it won’t extremity well.

Michael Burry, the antheral who correctly called the subprime owe situation successful 2008, has taken purpose astatine AI hype. Not conscionable targeting Nvidia (NASDAQ:NVDA), which helium says is supplying an AI physique retired that doesn't person the extremity idiosyncratic request to enactment it, but besides the hyperscalers, accusing them of systematically under-depreciating the precise GPUs and servers they brag astir buying.

In his caller Substack, "Cassandra Unchained," Burry calls it “one of the much communal frauds of the modern era,” not outright Enron-level fabrication, but assertive beingness extensions that inflate existent profits astatine the disbursal of aboriginal writedowns.

He's doing the hard enactment astir investors won't: digging into the SEC filings to find nuggets of interest companies don't privation you to see. Depreciation of assets is 1 of them.

Depreciation is the accounting process of spreading the outgo of a carnal plus (like servers oregon GPUs) implicit its estimated utile life. Instead of expensing the afloat acquisition terms successful twelvemonth one, a institution recognizes a information of the outgo arsenic an disbursal each year, reducing reported profits gradually portion matching the disbursal to the periods the plus generates revenue.

Burry says the manufacture could beryllium understating depreciation by $176 cardinal betwixt 2026 and 2028, capable to inflate combined net by astir 20%. By extending the assumed beingness of these assets, companies are lowering their yearly depreciation disbursal and boosting near-term earnings. If they shorten them -- which Burry argues they should -- it has the other effect.

The timing is deliberate, arsenic astir of these chips won’t deed the backmost fractional of their assumed lives until 2026 to 2027, conveniently aft the existent hype rhythm peaks.