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Famed investor Michael Burry, manager of Scion Capital, argues that major tech companies, referred to as hyperscalers, are inflating their earnings estimates by extending the depreciation periods of their AI-related hardware, such as servers and GPUs. He claims this has led to an understatement of depreciation costs by approximately $176 billion from 2026 to 2028, suggesting that companies like Oracle and Meta Platforms may be overstating their earnings by nearly 27% and 21%, respectively.
Burry’s analysis indicates that if depreciation rates are adjusted to reflect a shorter useful life for these assets, it could result in a downturn in the AI sector, effectively bursting the AI investment bubble. His concerns are corroborated by trends in 10-K filings, where companies like Amazon have already begun reducing depreciation rates due to rapid technological advancements in AI.
If Burry’s assumptions hold true, hyperscalers will likely face increased capital expenditures, negatively impacting cash flows, and leading to a reassessment of returns on AI investments, which could stifle future spending in the sector.
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