Michael Burry, the famed investor from The Big Short, just made one of his most explosive accusations since calling out the housing bubble in 2008. In a post that instantly went viral, Burry suggested that major artificial intelligence (AI) players like Meta (META), Oracle (ORCL), Microsoft (MSFT), Amazon (AMZN), and Google (GOOG) (GOOGL) are engaging in what he described as fraudulent accounting tied to the AI infrastructure boom.
At the same time, Burry is reportedly shutting down his hedge fund and transitioning to a family office, in a move that shocked markets.
But what exactly is Burry accusing these companies of? And more importantly, is he right?
During last Friday’s Market on Close livestream, Barchart’s Senior Market Strategist John Rowland, CMT, broke down the context behind Burry’s claims — and why some bearish analysts agree the market may be ignoring a serious structural flaw in the AI trade.
The Core of Burry’s Accusation: “Creative Accounting” in the AI Arms Race
Burry’s argument centers on one key issue: Big Tech is massively understating depreciation expenses on AI chips and servers, and overstating earnings. AI chips are extremely expensive and have a short life cycle, often just 2–3 years.
But Burry says hyperscalers are spreading out depreciation over longer periods, giving investors the impression that earnings are far stronger than they actually are.
He estimates that between 2026 and 2028, earnings could be overstated by:
- Oracle: +26%
- Meta: +20%
- Microsoft / Amazon / Google: ~$176B in unrecognized capital decay
This is not a small accounting discrepancy; it’s on par with the early signs of Enron’s collapse. And Burry explicitly compared current AI financing structures to the SPVs (special-purpose vehicles) that helped bring down Enron.
The “Daisy Chain” Problem: Circular AI Funding
John Rowland explains what Burry means by this “web” or “daisy chain” financing structure.
Here’s how it works:
- Companies borrow massive amounts of money to buy AI chips.
- Private lenders finance this debt outside traditional bank regulation.
- The collateral is the chips and servers themselves.
- Those chips depreciate faster than the loans tied to them.
- More debt is taken out to buy more chips.
- Debt spirals upward faster than revenue.
For example, CoreWeave (CRWV), a major AI infrastructure provider, now has:
- Interest expenses exceeding operating income
- New debt being taken at 12.3%, up from 9.6% just months ago
- A business model that requires constant borrowing to fund expansion
And Oracle? Their debt has ballooned to $90 billion, and the debt-to-equity ratio has spiked above 3, the highest of its peers and a level that Rowland calls “a cautionary tale.”
Burry’s concern — shared by Enron short seller Jim Chanos — is that if these firms pause spending or acknowledge true depreciation, the AI boom could suddenly deflate.
4 “Pins” That Can Pop a Bubble
John Rowland highlights four classic signs of risk that a financial bubble is ready to pop:
- Insider Selling
- Financial Distress
- Massive Leverage
- “Funky” Accounting
As John notes, “These are the exact patterns we saw in Enron and in the financial crisis. Burry’s frustration is that the market isn’t reacting to any of it.”
Are AI Stocks a Bubble? Or Just Overextended?
Not all companies are equal, and that’s the nuance traders miss. Among hyper-growth AI infrastructure companies, these are the most exposed:
Their AI capex is soaring faster than revenue, faster than earnings, and faster than depreciation schedules acknowledge.
However, analysts also note that among this group, diversified tech giants like MSFT have broader, entrenched business models beyond AI, which means the risk here is spread across the balance sheet.
The Bottom Line
Michael Burry is not predicting an immediate crash; he’s pointing out the same structural weaknesses he saw before previous bubbles popped.
Does that mean short everything AI? No. But it does mean:
- Pay attention to valuations
- Watch debt trends
- Don’t assume AI growth = infinite profits
- Understand depreciation risk
- Differentiate real AI winners from hype-driven borrowers
For traders, there are opportunities on both sides — long and short — if you understand the mechanics behind Burry’s warning.
Watch this quick breakdown of Burry & the AI Bubble:
Stream the full episode of Market on Close
On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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