Michael Burry: Google, Microsoft, Meta Inflate Profits 20% via AI Accounting
Michael Burry warns that Google, Microsoft and Meta reclassify AI research expenses as capital expenditures, boosting reported profits by about 20%. He argues this aggressive cost treatment disguises true AI spending and inflates operating margins, potentially misleading investors on each company’s profitability.
1. Burry’s Warning
Michael Burry alleges that Alphabet, Microsoft and Meta deploy ‘sinister’ accounting by capitalizing AI research and development costs rather than expensing them immediately. He claims this practice inflates each company’s reported operating profit by roughly 20%, obscuring true expense levels.
2. Accounting Mechanics
By shifting AI R&D outlays into long-term assets on the balance sheet, the firms reduce current operating expenses, lowering the cost of revenue and research line items. This reclassification boosts EBITDA and operating margins even as actual cash expenditures on AI surge.
3. Investor Implications
Investors relying on reported profitability may overestimate these companies’ core earnings power, given that crucial AI expenses are deferred. Skepticism over earnings quality could lead analysts to apply steeper discount rates or adjust growth forecasts downward.
4. Regulatory and Market Risks
Aggressive capitalization of AI costs may invite scrutiny from accounting watchdogs or prompt restatements if challenged. Any regulatory action or disclosure changes could trigger volatility in share prices and force a revaluation of long-term growth prospects.