Investor Michael Burry of The Big Short fame issued a fresh warning on the AI boom, observing that the hyperscalers leading the charge are amassing $3 trillion in financial commitments that aren’t reflected in their balance sheets.
“These liabilities, I say, are, in essence, in hypergrowth mode,” Burry wrote in a Sept. 19 Substack post.
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Burry singled out Amazon, Meta Platforms, Alphabet, Microsoft and Oracle for proceeding with enormous capital expenditures.
Alphabet leads the way with $811 billion in planned spending and contractual obligations on everything from memory chips and data centers to electricity generation and more.
$3 trillion not on hyperscaler balance sheets
The pack of hyperscalers is holding $1.2 trillion in future lease commitments along with $1.5 trillion in commitments to purchase AI-related hardware and equipment, such as memory chips. The latter can be kept off a firm’s balance sheet until the products ultimately reach the hyperscalers and each party fulfills its obligations under current accounting rules.
The sum reaches $3 trillion once guarantees and financial backstops are accounted for. Burry warned that a financial miscalculation risks blowing a hole in a blue-chip tech company’s revenue.
“When the music’s over, these off-balance sheet commitments become real liabilities very quickly,” Burry said.
Burry’s AI bets
Burry has built a reputation as an investor betting against the AI boom, much like he did almost two decades ago when he staked positions against the U.S. housing market. In January, he warned the AI bubble would pop and take the U.S. economy with it.
“The government will pull out all the stops to save the AI bubble to save the market to save the economy,” he said on X. “The problem is too big to save.”
Burry has raised concern about a misalignment between the intended lifespan of a data center and the speed of AI chip development. Wholesale leases for data centers typically run between five and 15 years while new AI chips are introduced annually with different energy specifications.
If the AI hardware evolves faster than the data center’s costly infrastructure, it could leave hyperscalers on the hook for expensive upgrades that they hadn’t planned for, Burry said in the Substack post.
He’s not alone. Famed investor Jeffrey Gundlach, founder and CEO of DoubleLine Capital, issued similar warnings when chipmaking giant Nvidia partnered with Wall Street firms to create a $500 billion fund to finance the AI boom while relying on “assets of unknown life” as collateral.
Over the past year, Burry has only kept expanding his bearish positions. In June, he announced bets against Applied Materials, which makes chipmaking equipment, automaker giant Tesla and Caterpillar, the construction and mining equipment company.
Burry announced an increase in his short positions on Tuesday, taking positions against semiconductor behemoths like Micron Technology, software firm Palantir and Nebius, an AI cloud company.
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This article originally appeared on Moneywise.com under the title: Michael Burry says $3 trillion in off-balance-sheet AI commitments could blow a hole in Big Tech’s revenue
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