'The Big Short' Michael Burry "AI tech stocks inflate profits by manipulating depreciation"

"AI equipment life spans are being set too long to boost profits"

"Oracle and Meta overstate profits"

Michael Burry, the model for the film 'The Big Short' who predicted the 2008 global financial crisis, this time targeted core companies at the center of the artificial intelligence (AI) craze. He claimed that major U.S. cloud and AI infrastructure companies are reducing depreciation expenses to artificially inflate profits.

On the 10th (local time), Burry wrote on his X (formerly Twitter), "AI hyperscaler companies are setting asset useful lives excessively long to reduce depreciation expense," adding, "This is one of the most common profit-inflating techniques in modern accounting." A hyperscaler company refers to a global IT company that operates ultra-large (hyperscale) data centers and cloud infrastructure.

He pointed out that "they are buying large quantities of equipment that is replaced on a 2~3 year cycle, such as NVIDIA's chips and servers, yet accounting for assets as if their useful lives were extended." He explained that this accounting method can inflate a company's net income in the short term, but does not help actual cash flow.

Burry estimated that the scale of reduced depreciation could reach about $176 billion from 2026 through 2028. He specifically claimed that Oracle's and Meta's profits could be overstated by 27% and 21%, respectively, by 2028.

CNBC judged that while Burry's claim raises serious concerns, it is difficult to conclude actual 'manipulation' because companies have wide discretion to estimate depreciation periods.

Usually, when a company purchases high-value assets like semiconductors or servers, it recognizes depreciation expense each year in line with the rate at which the asset's value declines, under accounting standards (GAAP). However, if the asset's useful life is set longer than in reality, the annual depreciation expense reflected will be reduced, creating an effect of inflated profits.

Burry has warned since earlier this year that "the AI investment frenzy is reminiscent of the late-1990s dot-com bubble." He disclosed in a recent quarterly filing that he holds large put options (bets on a decline) on NVIDIA and Palantir shares.

According to filings, Burry holds about $187 million in put options on NVIDIA and about $912 million on Palantir. However, specific strike prices or expiration dates were not disclosed.

In response, Palantir CEO Alex Karp publicly rebutted, saying, "Burry's bet is 'strange and, a crazy thing (bats--- crazy)'". It was not confirmed whether Burry still holds those positions.

Burry said, "I will disclose further details on this issue on November 25," and left the message "Stay tuned".

New York = Shin-young Park, correspondent nyusos@hankyung.com