Michael Burry Targets Baidu Next — Claims China's Search Giant Juiced Earnings With Aggressive Server Accounting

• Michael Burry questioned Baidu's decision to extend the useful life of its servers, only to disclose a massive write-down in the last quarter.
• The Chinese Search giant swung to a net loss in Q3, due to a $2.3 billion impairment charge.
• Depreciation and server impairments at cloud companies have come under sharper scrutiny lately, due to rapid advances in server technology and faster upgrade cycles.

Famed investor Michael Burry took a swipe at Baidu on Tuesday, noting that the company has steadily stretched the useful lives of its assets in recent years, only to book a massive "proactive" write-down last quarter, and suggesting that its accounting practices were questionable.

The Chinese tech giant booked a 16.2 billion yuan ($2.3 billion) impairment charge, it disclosed on Tuesday, which resulted in a third-quarter net loss. 

Sudden Impairment Charge Worrisome

Burry pointed out that the figure is over half of the remaining book value of Baidu's servers and equipment, speculating that extending the useful life earlier could boost profits.

In a post with screenshots of excerpts from the company's current and past earnings statements, the "Big Short" investor said the company increased "useful life for servers" from four years to five in 2021, and then from five years to six in 2024. 

Baidu "had RMB 8-11 billion cap ex (capital expenditure) each of the last 4 years, and Depreciation RMB 6.8 billion in 2024. In 2024, net income rose over 50% as a result of the useful life change," he said in his X post.

Depreciation and server impairments at cloud companies have come under sharper scrutiny lately, as rapid advances in server technology and faster upgrade cycles raise the stakes for investors and analysts alike.

Baidu CFO Haijian He said on the analysts call that the company conducted a comprehensive review of its infrastructure portfolio and found that "some of the existing assets no longer meet today's computing efficiency requirements. So we actually proactively did some impairments."

At the same time, he insisted that the company's plan to accelerate investment in the latest AI technology remains intact.

US Hyperscalers' Depreciation Maneuvering

Notably, Burry also recently put the depreciation schedules of top U.S. AI hyperscalers — Meta, Alphabet, Oracle, Microsoft, and Amazon — under the microscope, arguing that they might be understating depreciation by using higher-than-realistic server lifecycles to boost future profits.

"Understating depreciation by extending useful life of assets artificially boosts earnings — one of the more common frauds of the modern era," he said in an X post last week. "Massively ramping capex through purchase of Nvidia chips/servers on a 2-3 yr product cycle should not result in the extension of useful lives of compute equipment." 

Burry estimated that from 2026 through 2028, the accounting maneuver would understate depreciation by about $176 billion, inflating reported earnings across the industry. He singled out Oracle and Meta, saying their profits could be overstated by roughly 27% and 21%, respectively, by 2028.

It is important to note that Burry is one of the few investors betting against Nvidia and Palantir, arguably the best-performing companies in the AI era.

Broader Market Warnings

Burry has returned to social media in recent weeks with a series of warnings about surging AI and cloud spending. 

He has shared charts comparing current market behavior with past peaks, including the dot-com era, the 2007 housing cycle, and the 2014 shale boom, each followed by sharp reversals. His posts have also pointed to rising TMT capital expenditure and the circular deals occurring in the AI industry.

Burry also clarified that his Scion Asset Management was not closing, as some had assumed due to its SEC deregistration, but is transitioning to a “family-and-friends” fund.

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