Michael Burry's Depreciation Critique and Potential Impact on NVIDIA (NVDA)

Michael Burry’s short position on NVIDIA (NVDA) centers on a critical accounting practice: AI chip customers (hyperscalers like Meta, cloud providers like CoreWeave) overstate the useful lives of their GPU assets, inflating near-term profits [1][2]. Depreciation accounting allocates asset costs over their useful life—longer lives reduce annual expenses, boosting net income [4]. For example, Meta extended its compute equipment useful life from 4-5 to5.5 years in 2025, cutting depreciation by $2.9B [4]. CoreWeave uses a 6-year cycle for GPUs, but Burry estimates actual lifespans at just 2-3 years [2]. This misalignment creates a risk: when customers need to replace chips sooner than accounted for, they face unexpected cash flow squeezes, potentially reducing orders for NVIDIA’s high-margin AI chips (e.g., H100, B100) [2][5]. NVIDIA’s data center revenue grew from $15B to $115B in 2025, making this customer demand risk significant [2].

1. Cross-domain Link: Accounting practices (depreciation) directly impact tech hardware demand—aggressive assumptions by NVIDIA’s customers could erode the company’s revenue base.
2. Broader Ecosystem Impact: Burry’s critique extends beyond NVIDIA to the entire AI infrastructure sector, challenging the sustainability of profit margins for companies relying on overstated asset lives [3].
3. Sentiment Amplification: Burry’s track record (e.g., 2008 housing crisis) magnifies the market impact of his claims, even if short-term losses occur (as noted in his recent comments [7]).

Risks for NVIDIA: (a) Revenue Risk: Order cuts from cash-strapped customers could reverse recent data center growth [2]. (b) Sentiment Risk: The stock declined 1.68% on Nov14 amid these concerns, with potential for further drops if more customers adjust depreciation policies [1]. Risks for Customers: Earnings downgrades if regulators or market pressure forces accelerated depreciation [4][5]. Opportunities: Companies adopting realistic depreciation schedules may gain long-term cash flow stability, though this does not directly benefit NVIDIA in the short term. Note: Burry’s $200M put position on NVIDIA (80% of his portfolio) underscores the severity of his concerns [1][3].

Critical points include: Burry’s short position on NVDA ($200M) and PLTR ($900M); Meta’s $2.9B depreciation reduction via extended useful lives; NVIDIA’s $115B data center revenue in 2025; 1.68% stock drop on Nov14. This analysis provides context for evaluating AI-related investment risks but does not constitute advice.