‘Big Short’ investor Michael Burry says Wall Street has been overstating tech earnings by 42% for a decade — and you’re paying for it

Burry's comments aren't off the cuff. He came to this conclusion after analyzing more than 1,000 annual reports from Nasdaq 100 companies going back 10 years.

"Where there is money to be made, there is manipulation," he writes in his Substack, called Cassandra Unchained (1).

The math behind the claim

Burry claims that tech companies have improperly accounted for stock-based compensation (SBC) over the past decade. As a result, investors have been paying inflated prices.

Those prices are based on a loose interpretation of Generally Accepted Accounting Principles (GAAP), which are a standard set of rules used in financial reporting to ensure transparency and consistency.

But Burry argues that tech companies are treating SBC as "free" compensation for employees — and not accounting for real costs.

As a result, the Nasdaq 100 earnings of primary tech companies are overstated by nearly 20%, he writes, because SBC costs aren't fully factored in.

"Of every dollar of earnings per share that GAAP blesses, shareholders see only 83.49 cents of that dollar," he writes.

He highlights companies like Meta, which he says overstated owner earnings by about 20%. Other companies he points to include Datadog, Workday, Axon, Shopify, Palantir, Marvell, CrowdStrike and Zscaler.

Burry writes that Tesla's use of SBC was so significant, the GAAP overstatement was reduced from about 20% to 12.5% simply by removing Tesla from his analysis.

During the past decade (ending in fiscal 2025), 97 tech companies in the Nasdaq 100 reported $4.9 trillion in cumulative CAAP net income, according to Burry. But Wall Street analysts include SBC in their analysis, bumping that number up to $5.8 trillion. That, says Burry, leaves an "earnings illusion" of $1.7 trillion.

"Wall Street over the last 10 years guided investors to 42% more earnings than ever actually existed," he writes.

Burry has previously warned that AI hyperscalers are artificially boosting their earnings by understating the depreciation of their assets (3).

Broader implications for investors

The practice of improperly accounting for SBC "skews valuation metrics, making companies appear more valuable than they truly are," according to American Bankruptcy Institute Journal, per FTI Consulting. "Analysts and investors often accept these adjusted figures without question, leading to inflated market perceptions (4)."

Unless investors push back, then "widespread reliance on adjusted EBITDA as a performance measure will continue distorting financial evaluations and misleading stakeholders (4)."

Many Americans own stocks through 401(k) plans or index funds, which are increasingly concentrated in major tech companies. So they could face significant losses if valuations were to normalize.

Out of 2,013 U.S. stock funds (excluding sector funds) screened in Morningstar Direct, an investment analysis platform, Morningstar found that 119 of those "had 50% or more of their assets in tech, while 298 had a 40% or higher allocation (5)."

And those numbers are understated, since some investors categorize tech stocks under different sectors — such as categorizing Meta and Alphabet under the communications services sector (5).