Michael Burry’s hedge fund has taken a short position in Nvidia due to concerns with big tech’s accounting practices. Burry, known for predicting the subprime mortgage crisis, believes AI infrastructure is being depreciated over a longer timeline than its actual usefulness, potentially leading to inflated earnings and accounting fraud.

Burry’s concerns center around Nvidia’s rapid release of new GPU architectures, which shortens the product life cycles of existing chips. He argues that big tech, including major Nvidia customers like Microsoft and Amazon, are under-accounting expenses and artificially boosting profits. Burry’s claims have sparked a debate on whether these practices constitute fraudulent accounting.

While Burry’s accounting concerns are valid, some argue that labeling these practices as fraudulent may be excessive. Companies adhere to GAAP, and metrics like EPS may not fully reflect profitability. Audited by major accounting firms, tech companies are unlikely to engage in fraudulent accounting practices. Additionally, analyzing non-GAAP figures like free cash flow can provide a clearer picture of a company’s financial health.

Looking ahead, Burry’s skepticism towards big tech’s capital expenditures and profit growth may not align with the industry’s current performance. Hyperscalers are seeing revenue growth, expanding gross margins, and accumulating free cash flow from AI investments. Despite Burry’s warnings, many remain optimistic about Nvidia’s growth prospects and its influential role in the AI sector for years to come.

Read more at Nasdaq: Michael Burry Just Sent a Warning to Artificial Intelligence (AI) Stocks. Should Nvidia Investors Be Worried?