Michael Burry Shuts Down Hedge Fund, Warns of AI Bubble and Accounting 'Fraud'

The Big Short Investor Takes Aim at AI

Michael Burry, the investor whose prescient bet against the 2008 housing bubble was immortalized in "The Big Short," has made headlines again by shutting down his hedge fund amid concerns about an artificial intelligence bubble. In a letter dated October 27 to investors of Scion Capital, Burry explained his decision to liquidate the fund, stating that his "estimation of value in securities is not now, and has not been for some time, in sync with the markets" 1

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The closure comes as Burry has taken significant short positions against two major AI-related companies: defense technology firm Palantir and semiconductor giant Nvidia. His bearish stance on Palantir is particularly aggressive, with a $50 price target for 2027 despite the company currently trading above $170 per share 1

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Allegations of Accounting Manipulation

Burry's critique of the AI sector extends beyond simple market valuation concerns to what he characterizes as systematic accounting fraud. He alleges that major technology companies are manipulating their financial statements through artificially extended depreciation schedules for their computing hardware. According to Burry, hyperscale companies including Oracle, Meta, and Google are claiming their chipsets have useful lifespans of five to six years when the actual operational life is closer to two to three years 1

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This accounting practice, which Burry calls "one of the more common frauds of the modern era," has significant financial implications. He projects that earnings from these companies will be overstated by $176 billion between 2026 and 2028, with some firms like Oracle and Meta potentially overstating their actual earnings by more than 20% 1

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Industry Pushback and Supporting Voices

Burry's positions have drawn criticism from industry leaders, particularly Palantir CEO Alex Karp, who dismissed the short seller's strategy as "batshit crazy." Karp argued that targeting companies "making all the money" in the AI space was illogical 1

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However, Burry is not alone in his skepticism. Fellow short seller Jim Chanos has pointed to cloud-based GPU provider CoreWeave as an example of questionable depreciation practices, suggesting the company would be barely profitable under more accurate depreciation timelines 1

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Growing Concerns About AI Profitability

The broader questions about AI company profitability extend beyond Burry's specific allegations. Recent reports indicate that even OpenAI, one of the sector's most prominent companies, is facing scrutiny from investors about slowing growth. During a private investor call, OpenAI's Chief Financial Officer Sarah Friar attributed part of the company's growth deceleration to reduced user engagement with ChatGPT following the implementation of stronger content restrictions 1

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Strategic Repositioning

Burry's decision to close his hedge fund appears to be part of a broader strategic shift. The closure of Scion Asset Management eliminates the requirement for regular public filings, potentially allowing Burry to operate with greater discretion through a family office structure 2

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. In a cryptic social media post, he hinted at future developments, writing "On to much better things Nov 25th" 2

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