Sounding off: Amid growing fears of a potential AI bubble, renowned Wall Street investor and former hedge fund manager Michael Burry has claimed that tech companies have been manipulating their financial reports and inflating earnings by as much as 42% over the past decade. Burry's comments have unsettled many investors who were already concerned about the unprecedented rise in tech valuations over the past couple of years.
Best known for predicting the 2007 – 2008 subprime crisis that ultimately escalated into a full-blown financial crash, Burry argued in a recent Substack post that several Nasdaq-100 tech companies have repeatedly misreported stock-based compensation over the past decade, overstating earnings by around 20% and leading investors to buy stocks at inflated valuations. According to him, the issue stems from the way GAAP financial statements treat SBC as a non-cash expense without fully reflecting its economic impact on shareholders.
Burry, who shut down his hedge fund last year citing concerns over an AI bubble and inflated stock valuations, named Meta, Tesla, Datadog, Workday, Axon, Shopify, Palantir, Marvell, CrowdStrike, and Zscaler among the worst offenders. If his calculations are accurate, many tech stocks on Wall Street are effectively trading at around 30 times earnings, rather than the 25 times price-to-earnings ratio that investors believe they are buying into.
Burry singled out Tesla as the clearest example of how companies are allegedly distorting GAAP reporting to understate stock-based compensation costs. Describing CEO Elon Musk's $1 trillion pay package as a "beastly mass," Burry said that removing it from his dataset would immediately reduce overall Nasdaq-100 misreporting from 20% to 12.5%. He was also critical of Meta, claiming that the company's adjusted price-to-earnings ratio is closer to 24, compared with the reported figure of 19.
Explaining the discrepancy, Burry said that SBC figures reported by most tech companies rely on a simplified interpretation of GAAP, in which shareholders effectively see only 83.49 cents of every dollar in actual earnings. According to him, "the wayward 16.51 cents wave crudely at GAAP and thumb their noses at shareholders on their way to employees' pockets," a remark likely referring to C-suite executives and senior managers.
Burry also questioned companies' earnings projections, arguing that estimates are about 42% higher than what he calls "true owners' earnings." He estimates that the combined real earnings of 97 Nasdaq-100 companies total roughly $4.1 trillion over the past decade ending in fiscal 2025 – well below the $5.8 trillion reported by Wall Street analysts and financial media.