Michael Burry Reveals 'Sinister' Accounting Tricks of Mag 7 Firms to Inflate Earnings by Over 20%

Big Short's Michael Burry recently took aim at megacap US tech firms, including Microsoft, Meta Platforms, Oracle, Amazon and Google's parent company Alphabet, claiming that the Mag 7 companies are using extreme accounting strategies to hide the real costs of AI infrastructure buildout and related technological investments entirely.

In a post on the social media platform X, Burry said these companies are 'understating depreciation' to safeguard their bottom lines. Burry is struggling to come to terms with how these firms are maintaining the value of their AI hardware by artificially extending the 'useful life' of chips and servers, thereby keeping expenses off current income statements.

'Now you are engaging in accounting tricks to hide expenses, to protect earnings. You will be tortuously adjusting your earnings in new and sinister ways,' Burry wrote. 'A question I have for $ORCL, $GOOG, $META, $MSFT, $AMZN, $NVDA, $CAT, and all the rest, "When does the spending for AI data center buildout actually end?"'

'It is consuming all your cash flow, you are borrowing, you are financing in ways you never have, apparently because it is so urgent, because it scales? But if it scales, when does it end?' Burry asked the AI leaders in his X post.

Major Disconnect Between Reported Earnings and Economic Reality

Burry shared an analysis of how Mag 7 stocks could overestimate earnings between 2026 and 2028, depending on the chips/server life cycle. On average, the investor forecast that Mag 7 stocks will inflate their earnings by an average of 24% through 2028.

Oracle could inflate earnings by up to 62%, followed by Amazon at 31%. Meta at 30%, and Microsoft at 16%. Burry argued that if these firms used a more realistic 2.5-year depreciation cycle for AI chips and servers, their reported profitability would vanish entirely.

Burry also worries about the balance sheet of these companies, estimating over $226 billion in cumulative asset overstatement through 2028. He concluded that 'asset quality is important in the long run,' adding that a $50 billion write-off could appear insignificant against a $3 trillion market cap today, but 'it will loom larger should it come to that.'

Burry Reveals How the US Can Beat China in the AI Race

In an earlier post on X, Burry said that the best strategy for the US to stay ahead of China in the AI race is to facilitate a federal investment of $1 trillion for the development and deployment of small nuclear reactors to meet the growing electricity demand from AI data centres and high-tech manufacturing. He stressed that the rapid deployment of small nuclear reactors across the US could be a game-changer for maintaining long-term economic and technological growth rates nationwide.

However, Burry cautioned that bureaucratic delays and regulatory challenges could seriously hinder progress. He called on US President Donald Trump, Vice President JD Vance and other policymakers to prioritise the initiative and expedite the necessary approvals, warning that an energy shortfall could soon become a significant obstacle to American innovation and economic expansion.

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