‘Big Short’ fame Michael Burry’s depreciation complaint puts big tech profits in the spotlight

Big Tech’s ability to generate ever-increasing profits has supported investors’ continued enthusiasm for the stocks, regardless of their rising valuations. But what if those numbers are exaggerated?That’s the question famed investor Michael Burry asked this week in a much-discussed social media post. The head of Scion Asset Management, which is best known for betting against the U.S. housing market before the 2008 global financial crisis and recently terminated his hedge fund’s registration with the Securities and Exchange Commission, suggested that the longer depreciation schedules for computer equipment from tech giants like Meta Platforms Inc. and Alphabet Inc. allowing them to artificially absorb their profit growth.

These types of accounting moves are no secrets, and most investors are betting that the hundreds of billions of dollars spent on chips and other data center equipment will eventually pay off. The shares of the four largest publishers of artificial intelligence infrastructure – Meta, Alphabet, Amazon.com Inc. and Microsoft Corp. – are in green this year.But the involvement of Burry, who is closely followed in the investment community thanks to his starring role in the book The Big Short, puts a spotlight on the risks of that enormous expenditure. Meta, for example, is up just 3% in 2025, far below the 18% gain in the tech-heavy Nasdaq 100 Index, and the stock is down 18% in the second half of the year, putting it among the 25 worst-performing indexes. In contrast, Alphabet is up 46% this year, while Microsoft is up 19%.

“We are in a period where we are moving from AI hype to a need for AI proof,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial Services Inc.

The problem is how quickly depreciating assets like graphics processing units and servers lose value. In recent years, most Big Tech companies have extended so-called lifespan estimates for such equipment, reducing the non-cash costs that weigh on the bottom line. Earlier this year, Meta extended its lifespan estimates from four to five years to five and a half years, estimating that the change would reduce depreciation costs by $2.9 billion in 2025.

Microsoft and Alphabet have both made similar moves in recent years and say they have managed to get more use out of the equipment.

“Companies are constantly upgrading their servers, networking equipment and chips, so it’s not a new factor, but we haven’t seen it on this scale before,” says Saglimbene. “That makes investors nervous.”

Whether the longer timeline is appropriate is difficult to judge, said Stephen Glaeser, associate professor of accounting at the University of North Carolina’s Kenan-Flagler Business School. Skeptics argue that the depreciation should accelerate as chipmakers such as Nvidia Corp. releasing chips at a faster pace. That was the position of Amazon, which in February shortened the lifespan of server equipment from six to five years.

Representatives for Amazon and Microsoft declined to comment. Meta and Alphabet did not respond to requests for comment.

Microsoft CEO Satya Nadella last month discussed the importance of continually buying new chips and making improvements to make greater use of such ephemeral assets.

“You’re constantly modernizing and devaluing it. And that means you’re also using software to increase efficiency,” he says in response to a question about generating sufficient returns on investments.

The debate is more important than ever as the pace of capital spending on computing infrastructure continues to increase. The four largest publishers are expected to increase combined investments by about 40% to $460 billion over the next 12 months, with much of that going to computing equipment, data compiled by Bloomberg show.

Depreciation costs skyrocket even with the accounting moves. Alphabet, Microsoft and Meta combined for around $10 billion in depreciation costs in the final quarter of 2023. In the quarter that just ended in September, this figure rose to almost $22 billion. By this time next year, analysts expect this to be close to $30 billion.

Still, the group posted profits in the third quarter that were well above Wall Street expectations. With Nvidia’s results due to be announced next week, the profits of the so-called Magnificent Seven, which also includes Apple Inc. and Tesla Inc. are on track to rise 27% from a year ago, nearly twice the 14% growth forecast at the start of the earnings season, according to data from Bloomberg Intelligence.

Those kinds of gains outweigh concerns about things like depreciation costs, said Phil Blancato, chief market strategist at Osaic, which has more than $700 billion in assets under management.

“The money they’re spending is very stimulative of future revenue, and that’s the point that’s being overlooked,” Blancato said. “There is no reason yet to be concerned about their ability to grow.”