The AI Chip Depreciation Debate

In November 2025, hedge-fund manager Michael Burry, whose bet against subprime mortgages was dramatized in the 2015 movie The Big Short, accused the major technology companies of inflating earnings by extending depreciation schedules on AI hardware, calling it “one of the more common frauds of the modern era.” The case places students in the role of an analyst at an AI-focused investment fund who must evaluate Burry's thesis and prepare the fund’s response to nervous investors. Preparing that response forces the protagonist through a series of increasingly consequential questions. What is depreciation, and why does it matter if it is a noncash charge? How much discretion do managers have over useful-life estimates under GAAP, and what happens to reported earnings when they exercise it? Can a chip that physically functions for a decade become economically obsolete in two years, and if so, what does the matching principle require? And if Burry is right that earnings are overstated, does that necessarily mean these stocks are overvalued? The case is designed for core financial accounting or financial statement analysis and valuation courses, with emphasis adaptable to each context.