Michael Barry attends the New York premiere of ‘The Big Short’ at the Ziegfeld Theater on November 23, 2015 in New York City.
Jim Spellman | Wire Images | Getty Images
Michael Varley, the investor who recently became famous for his short bets on tech stocks called “The Big Short,” has accused some of America’s biggest technology companies of using aggressive accounting practices to inflate profits from the artificial intelligence boom.
In a post on X on Monday, the founder of Psion Asset Management claimed that “hyperscalers” (large cloud and AI infrastructure providers) underestimate depreciation costs by estimating chip lifecycles to be longer than reality.
“Extending the useful life of an asset and underestimating its depreciation expense artificially inflates profits. This is one of the most common frauds of our time,” Barry wrote. “Significantly increasing capital expenditures by purchasing Nvidia chips/servers with 2-3 year product cycles should not extend the useful life of computing equipment. But this is exactly what all hyperscalers have done.”
Barry estimated that from 2026 to 2028, this accounting maneuver would understate depreciation and amortization by approximately $176 billion, inflating reported profits across the industry. he made a white arrow oracle and meta Platform companies say their profits could be overstated by about 27% and 21%, respectively, by 2028.
CNBC has reached out to Oracle and Meta for comment. Nvidia declined to comment. Berry’s accusations are serious but could be difficult to prove because companies are given leeway in estimating depreciation. CNBC could not independently confirm that this practice was being carried out by the companies.
When prepaying for large assets, such as semiconductors or servers, generally accepted accounting principles (GAAP) allow a company to allocate the cost of that asset as an annual expense based on the company’s estimate of how quickly the asset will depreciate in value. The longer a company estimates an asset’s lifecycle, the lower the annual depreciation expense that leads to its bottom line.
Barry, who famously bet on subprime mortgages before the 2008 financial crisis, warned earlier this year that the AI frenzy was akin to the tech bubble of the late 1990s.
Last week, Barry unveiled a seemingly fresh bet on AI favorites Nvidia and Palantir Technologies. As of Sept. 30, he disclosed put options with a notional value of approximately $187 million for Nvidia and approximately $912 million for Palantir, according to regulatory filings. The filing does not specify the exercise price or expiration date of the contract.
The revelation prompted a furious reaction from Palantir CEO Alex Karp, who called Barry’s bet “very strange” and “insane.” It’s unclear whether he still holds these positions or whether they were simply hedges.
Nvidia stock rebounded nearly 6% on Monday after falling 7% last week. Palantir stock soared nearly 9% on Monday after falling 11% last week. Nvidia fell again on Tuesday.
Burley said in a post on X that “further details” will be announced on November 25th, and readers should “stay tuned.”
