Michael Burry Sees Looming Write-Offs Hitting AI Stocks

Michael Burry, the investor who predicted the 2008 financial crisis, warned in a September 25 blog post that Big Tech's AI spending boom could produce massive write-offs by 2028 or 2029, comparing the current cycle to the dot-com bubble. Burry flagged net capital investment at 2.07% of GDP, the highest level in four decades outside the aftermath of the March 2000 Nasdaq peak.

S&P Global Ratings projects five of the six major hyperscalers will post negative free operating cash flow in 2027, with Microsoft the exception, as combined capex hits $1.3 trillion. Taking the time to check up on your financial health before holding stocks whose most profitable companies are burning cash to fund a buildout Burry compares to past capital-cycle busts is a step the quarterly earnings beats may not prompt on their own.

Burry warned that AI write-offs could hit hyperscalers by 2028 or 2029

Burry argued that the problem is not how much companies are spending but how much of that spending is financed through leases, purchase obligations, and commitments that do not immediately appear as conventional capital expenditure or debt, Yahoo Finance detailed from the blog. "The most profitable companies in the world, except Apple, are betting everything on this as their free cash flow turns negative and the borrowing pace increases," Burry wrote.

He drew a direct comparison to the early-2000s telecom bust, when infrastructure companies suffered enormous write-offs after building capacity that demand never absorbed. "Capital alone is no lasting competitive advantage," Burry added, urging investors to wait for more attractive opportunities rather than chase the AI boom at current prices.

Alphabet carries nearly $900 billion in off-balance-sheet commitments

Burry examined the off-balance-sheet exposures of each major hyperscaler and found commitments that dwarf what appears on conventional financial statements, Yahoo Finance confirmed. Key figures from his analysis include the following.

• Alphabet: nearly $900 billion in commitments, including purchase obligations and AI partner financing Burry called "circular dealing."
• Meta: roughly $700 billion in uncommenced leases and purchase obligations, potentially approaching $1 trillion.
• Microsoft: uncommenced leases more than tripled to over $300 billion.
• Amazon: uncommenced leases and purchase commitments surged 81% in nine months to approximately $267 billion, while long-term debt doubled in six months to $128.9 billion.

Burry singled out Alphabet's practice of investing in AI companies while also supplying them with computing infrastructure, calling it the kind of arrangement that would attract greater scrutiny.

S&P Global projects five of six hyperscalers will post negative free cash flow in 2027

S&P Global Ratings published research on August 27 projecting that combined hyperscaler capex will exceed $1.3 trillion by 2027. The six companies examined are Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META), Oracle (NYSE:ORCL), and SpaceX (NASDAQ:SPCX). Five of the six are projected to generate negative free cash flow in 2027, with Microsoft the exception.

"As AI infrastructure investment accelerates, the focus is expanding beyond the scale of spending to the funding models, financial commitments and long-term implications that accompany it," said Naveen Sarma, Managing Director at S&P Global Ratings. Recovery is not projected until 2029, with S&P modeling a 2028 inflection point where revenues accelerate and capex growth moderates.

Epoch AI data shows capex growing at 70% annually versus 23% for operating cash flow

Epoch AI's analysis of SEC filings showed hyperscaler capital expenditures growing at approximately 70% year over year, while operating cash flow grew at just 23%. The widening gap between spending and cash generation is the core dynamic both Burry and S&P Global are flagging as unsustainable without either a sharp revenue acceleration or an eventual reduction in the buildout pace.

For your portfolio, the 47-percentage-point gap between capex growth and cash-flow growth is the clearest single metric to watch. A narrowing of that gap would indicate that AI revenues are catching up to the infrastructure investment, while a widening would strengthen Burry's thesis that write-offs are coming.

Microsoft extended data center useful lives from 15 to 25 years

Burry took particular aim at Microsoft's accounting, pointing out that the company extended the upper end of its data center useful-life range from 15 years to 25 years, Yahoo Finance detailed. The change reduces annual depreciation expense and spreads the cost of AI infrastructure over a longer period, effectively lowering reported capital expenditure in 2026 and 2027.

"Too cute by half," Burry wrote, arguing that Microsoft appears increasingly willing to use depreciation assumptions to achieve desired accounting outcomes. For retirees comparing Microsoft's reported earnings to its actual cash spending, the depreciation-life extension means the gap between accounting profit and cash outflow is wider than the income statement suggests.

Combined hyperscaler capex is on track for $800 billion in 2026 and $1.3 trillion in 2027

The six major hyperscalers are on pace to spend roughly $800 billion on capital expenditure in 2026, with estimates pointing to $1 trillion or more in 2027, Yahoo Finance confirmed. The scale has made institutional investors nervous because spending is increasingly outpacing free cash flow, forcing companies to rely more on debt and lease financing.

Only Microsoft is projected to generate positive free cash flow in 2027, the Motley Fool wrote in its coverage of the S&P report. The remaining five are expected to burn cash through at least 2028, raising the question of whether AI-related revenues will ultimately justify the investment or whether Burry's write-off thesis proves correct.

Bottom line

Burry's write-off warning draws on provable financial strain: nearly $900 billion in off-balance-sheet commitments at Alphabet, leases tripling at Microsoft, and debt doubling at Amazon, all while S&P Global projects negative free cash flow for five of the six hyperscalers in 2027, with Microsoft the exception. The 70% annual capex growth rate versus 23% operating cash flow growth documented by Epoch AI quantifies the gap.

Deciding whether to start investing additional capital in these names or trimming exposure depends on how you weigh the 2028 inflection S&P models against the write-off risk Burry describes. The quarterly earnings beats are real, but so are the commitments sitting off the balance sheet, and the distance between the two is what defines the risk you carry into the next three years.

This article is for informational purposes only and should not be considered investment advice.

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