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Michael Burry vs. Big Tech: The Truth Behind the “Earnings Fraud” Hiding in Plain Sight
Michael Burry’s Latest Bombshell
When The Big Short investor Michael Burry talks, markets listen—and this time he’s accusing Big Tech of something he calls “earnings fraud.”
His argument: tech giants like Microsoft, Amazon, Meta, Alphabet, and Oracle are inflating profits by extending the useful life of their AI servers, GPUs, and data-center equipment.
In simple terms, they’re telling investors, “Our machines last longer now,” which lets them spread the cost over more years. That slashes depreciation expense and boosts reported earnings—even though cash flow hasn’t changed at all.
Burry estimates about $176 billion in understated depreciation between 2026 and 2028, claiming Oracle and Meta could be overstating earnings by 27 percent and 21 percent, respectively.
It’s a bold claim. But is he right?
What’s Actually Happening in Big Tech’s Accounting
1. The AI hardware boom
Hyperscalers are in the middle of the largest infrastructure expansion since the dot-com era. Between 2023 and 2025, they’ll pour hundreds of billions of dollars into data centers, fiber networks, and NVIDIA-powered AI clusters.
2. The accounting trick (that isn’t illegal)
Each new server or GPU is a long-term asset. Companies record its cost over time as depreciation. By extending the “useful life” of those assets—from, say, four years to six—they reduce the annual expense, instantly boosting profit margins.
This doesn’t increase cash flow; it just changes the timing of reported expenses. But it looks impressive in quarterly results.
3. What the companies have actually done
Every major hyperscaler has adjusted its depreciation schedule:
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Microsoft moved from 4 years to 6 years.
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Alphabet (Google) did the same, adding roughly $3 billion to 2023 net income.
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Amazon AWS followed—then partially reversed course in 2025 when new GPUs aged faster than expected, taking a $920 million depreciation hit.
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Meta extended server lives to 5.5 years, cutting depreciation by nearly $3 billion annually.
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Oracle shifted from 5 to 6 years, adding $573 million to FY25 profit.
These are real, disclosed, audited changes.
Why It’s Legal—But Potentially Misleading
Under U.S. GAAP, changing useful lives is allowed if management believes the hardware genuinely lasts longer. It’s a judgment call, not deception.
However, that same flexibility means optimism can drift into earnings illusion.
If AI hardware becomes obsolete faster than expected, these companies will have to shorten lives again, triggering large one-time depreciation hits that crush profits.
Checking Burry’s Math
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Oracle: $573 million of benefit on $12.4 billion of net income = 4.6 percent, not 27.
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Meta: $2.9 billion reduction on roughly $18–20 billion earnings = far less than 21 percent.
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$176 billion total: To reach that number, depreciation would need to be nearly halved across all hyperscalers—an aggressive assumption.
So yes, Burry’s logic is right: longer asset lives inflate earnings.
But his scale is overstated, and “fraud” doesn’t fit the evidence.
What This Means for Investors
1. The profit illusion
Stretching depreciation makes today’s profits look stronger—but eventually the bill comes due when equipment wears out faster than expected.
2. Watch cash flow, not optics
Depreciation is non-cash, but it reveals how quickly assets lose value. If capital spending is rising while depreciation stays flat, the company may be setting up for a future margin squeeze.
3. Reversals happen
Amazon’s reversal is a warning. Once refresh cycles accelerate, management must shorten lives again—and that means an earnings hit.
Explain It Like You’re Five
Imagine you run a lemonade stand called Big Tech Lemonade Co.
You buy expensive blenders (those are your AI servers). You think they’ll last three summers, so you record one-third of the cost each year as depreciation. Then your accountant says:
“Those blenders are really durable. Let’s say they’ll last six summers instead.”
Now your yearly blender expense gets cut in half, and suddenly your profits double—without selling any extra lemonade.
That’s what Big Tech is doing: saying their servers last longer, lowering depreciation, and reporting higher profits.
But if those blenders start breaking after three years, you’ll suddenly owe a huge replacement bill—and all those inflated profits disappear.
Michael Burry’s argument boils down to this: the blenders aren’t going to last that long.
It’s not necessarily fraud, but it’s optimistic accounting that makes companies look richer today and poorer tomorrow.
The Bigger Picture
AI spending is reshaping financial statements. Investors who ignore depreciation assumptions risk overvaluing these giants.
Burry’s warning isn’t a prophecy of collapse—it’s a reminder: when the hardware cycle moves faster than accountants expect, earnings quality weakens before revenue does.
Cash flow tells the truth; depreciation tells the story you want to believe.
Investor Checklist
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Review useful-life disclosures in upcoming 10-K filings.
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Track capex-to-depreciation ratios.
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Watch for impairments or early retirements of GPUs.
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Flag any reversal of extended life assumptions.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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