Michael Burry Warns of Common AI Valuation Fraud in Oracle, Meta Stocks
Michael Burry, renowned for his role in “The Big Short,” has raised concerns about the valuation practices of major AI-focused companies. His recent analysis points to potential accounting misrepresentations that could significantly affect profitability estimates.
Warning on AI Valuation Estimates
Burry took to X to express his doubts regarding the financial reporting of prominent tech firms. He accused these companies of manipulating depreciation schedules, which he sees as a growing trend in fraudulent accounting practices. According to him, firms extending the useful life of their assets are potentially inflating their earnings.
Targeted Companies
His critique specifically targeted several major players in the tech industry, including:
- Meta Platforms (META)
- Alphabet (GOOGL)
- Oracle (ORCL)
- Microsoft (MSFT)
- Amazon (AMZN)
Burry highlighted that these companies are reportedly depreciating their hardware over five to six years, which he argues should be much shorter—approximately two to three years—due to the rapid evolution of Nvidia’s AI hardware.
Financial Implications
According to Burry, the practice of extending depreciation schedules could result in inflated earnings estimates. He calculated that this misrepresentation might overstate the combined profits of these major firms by approximately $176 billion from 2026 to 2028. In particular, he noted that:
- Oracle’s profits could be inflated by about 27%
- Meta’s profits might see a 21% increase due to these accounting practices.
AI Hardware Value Context
While Burry’s criticisms raise valid concerns, not all aspects of his analysis are universally accepted. For instance, many older Nvidia models, like the A100 chips released in 2020, still maintain strong demand across U.S. and Chinese data centers. Michael Intrator, CEO of CoreWeave, confirmed that clients continue to utilize older GPU models, indicating a sustained value.
Stock Market Reaction
Despite Burry’s bearish outlook, AI-related stocks experienced significant gains. On Monday, the Nasdaq 100 rose by 2.2%, marking its most substantial one-day increase since May. Key performances included:
- Nvidia: Up by 5.8%
- Palantir (PLTR): Up by 8.8%
- Oracle: Up by 0.7%
Burry plans to release more in-depth calculations regarding his findings later this month. His observations introduce an additional layer of skepticism in a market that has shown robust rallying despite underlying uncertainties.
Conclusion
As the debate over AI valuation practices heats up, investors are urged to take a closer look at these financial dynamics. Burry’s warnings may signal a potential shift in the tech sector, highlighting the need for transparency in accounting standards.
