Michael Burry's Depreciation Thesis Against NVIDIA: Accounting Fraud Allegations Impact AI Sector

This analysis examines Michael Burry’s allegations that major AI hyperscalers are artificially boosting earnings through aggressive depreciation assumptions for NVIDIA chips [1]. The “Big Short” investor estimates these accounting maneuvers could understate depreciation by approximately $176 billion between 2026-2028, potentially inflating customer earnings by 21-27% [1][3]. NVIDIA has experienced significant volatility, dropping 10.4% in the 10 days following Burry’s disclosure, though the stock shows resilience trading at $190.17 [0][4]. The thesis raises fundamental questions about AI infrastructure sustainability and customer purchasing power.

Burry’s central argument centers on depreciation schedule manipulation, which he characterizes as “one of the more common frauds of the modern era” [1]. The allegation suggests that NVIDIA’s major customers—Meta, Google, Oracle, Microsoft, and Amazon—are estimating unrealistically long life cycles for AI chips, thereby reducing depreciation expenses and inflating near-term profitability [1][3].

• NVIDIA currently trades at $190.17, near the lower end of its 15-day range ($178.91 - $212.19) [0]
• The stock has shown recovery signs in after-hours trading despite recent volatility [0]
• Broader tech sector strength (NASDAQ +1.57%) provides some support [0]
• Palantir experienced even sharper declines (17.12%), suggesting sector-wide concerns [4]

• Market Cap: $4.63 trillion with an extremely high P/E ratio of 54.18x [0]
• Exceptional net profit margin of 52.41% appears vulnerable to accounting changes [0]
• Data Center segment represents 88.3% of revenue, creating customer concentration risk [0]
• Elevated trading volume (184.56M vs 194.60M average) indicates active market reassessment [0]

The high valuation metrics combined with the depreciation allegations create a particularly risky scenario, as any reduction in customer earnings growth could trigger multiple compression [0].

• NVIDIA is approaching its 50-day moving average, a critical technical support level [4]
• Recent volatility (3.08% daily standard deviation) reflects market uncertainty [0]
• The stock’s ability to hold key technical levels will be crucial for near-term sentiment

• Despite concerns, 75.9% of analysts maintain Buy ratings [0]
• Average price target of $235.00 suggests 23.6% upside potential [0]
• This disconnect between analyst optimism and Burry’s bearish thesis creates market tension

1. Accounting Practices as Demand Driver
   : The depreciation thesis suggests that current AI demand may be partially artificial, sustained by accounting maneuvers rather than genuine economic returns [1][3].

2. Customer Cash Flow Implications
   : If Burry’s estimates prove accurate, hyperscalers could face significant cash flow pressures, potentially forcing order reductions despite ongoing AI infrastructure needs [1].

3. Sector-Wide Systemic Risk
   : The allegations extend beyond NVIDIA to the entire AI infrastructure ecosystem, suggesting potential earnings restatements across major tech companies [1][3].

: The core debate highlights a fundamental tension between rapid AI technological advancement and realistic asset lifecycle accounting. While chips may become technologically obsolete quickly, their economic utility for certain workloads may extend longer, creating legitimate accounting complexity [3].

: The scale of alleged depreciation manipulation ($176 billion) could attract significant regulatory scrutiny, potentially leading to industry-wide accounting standard revisions [1].

The potential for $176 billion in earnings restatements across major customers could trigger:

1. Regulatory Investigation Risk
   : SEC inquiries into accounting practices at major hyperscalers [1]
2. Customer Order Reductions
   : Cash flow constraints leading to reduced NVIDIA purchases [1]
3. Earnings Volatility
   : Potential for sharp corrections if depreciation assumptions are revised [1][3]
4. Valuation Compression
   : High P/E multiple could contract rapidly if earnings growth slows [0]

of AI-related investments.

1. Earnings Clarity
   : NVIDIA’s Q3 2025 earnings (November 19) could provide definitive guidance on customer demand trends [4]
2. Technical Rebound
   : If NVIDIA holds key support levels, a technical bounce could materialize [4]
3. Sector Rotation
   : Alternative AI plays like Micron may benefit from NVIDIA-specific concerns [4]

The upcoming earnings announcement will be critical for market validation. Regulatory responses to Burry’s allegations could emerge quickly given the scale of the claims [1][4].

Changes in depreciation policies at hyperscalers and actual AI chip replacement cycles will become clearer, providing more definitive answers to Burry’s thesis [1][3].

AI infrastructure ROI realization across the industry will determine the sustainability of current spending levels and validate or refute the accounting concerns [1].

The depreciation debate highlights a fundamental tension in AI infrastructure investment: the need to balance rapid technological advancement with realistic asset lifecycle accounting.

from investors, particularly given the high valuations across the AI sector [0][1].

Key monitoring factors include NVIDIA’s earnings guidance, customer capital expenditure announcements, and any regulatory responses to the accounting allegations [1][4]. The market appears to be weighing Burry’s substantial concerns against continued analyst optimism and the transformative potential of AI technology [0][1][3].