Michael Burry says Oracle and Meta are wildly overvalued. Here's the root of his criticism.

By Steve Goldstein

Understating depreciation is a 'fraud of the modern era,' says investor. But old chips are still in demand.

How long can companies use old chips is at the heart of Michael Burry's latest criticism of valuations in the sector.

Michael Burry, the hedge-fund manager of "The Big Short" fame who is betting against two of the stock market's favorite AI plays, is back with a new criticism of valuations in the sector.

In a posting on the social-media service X, Burry went through the depreciation schedules of the networking and computing assets of the major hyperscalers - Meta Platforms (META), Alphabet (GOOGL), Oracle (ORCL), Microsoft (MSFT) and Amazon.com (AMZN), all of which depreciate over five to six years.

He's of the view the depreciation should be much faster.

"Understating depreciation by extending useful life of assets artificially boosts earnings - one of the more common frauds of the modern era. Massively ramping capex through purchase of Nvidia chips/servers on a 2-3 yr product cycle should not result in the extension of useful lives of compute equipment," he says.

He estimates that this longer depreciation schedule will result in earnings being overstated by some $176 billion between 2026 and 2028, with Oracle's earnings overstated by 27% and Meta by 21% on his calculations. Burry promised more details later in the month.

It is true that Nvidia (NVDA), one of the companies that Burry is betting against alongside Palantir (PLTR), is continually releasing new models. Next year it will release the Vera Rubin line, after launching Blackwell this year.

But old Nvidia chips, like the A100 that first debuted in 2020, are still very much in use now, in the U.S. and in China.

CoreWeave (CRWV) Chairman and CEO Michael Intrator told analysts on call on Monday night that demand for old chips remains strong.

"Demand for AI cloud technology remains robust across generations of GPUs," he said, according to a transcript from S&P Global Market Intelligence. Intrator said one customer re-contracted to use H100 chips, first introduced in 2022, at a price within 5% of the original agreement.

The Nasdaq 100 tracker QQQ of top tech stocks surged 2.2% on Monday, its strongest single-day advance since May.

-Steve Goldstein

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