Michael Burry Warns of $3 Trillion Hidden AI Debt

Investor Michael Burry warns that five major AI hyperscalers—Apple, Alphabet, Microsoft, Meta Platforms, Inc., and Oracle—have accumulated over $3 trillion in off-balance-sheet obligations. Burry predicts these liabilities, consisting of $1.2 trillion in data center leases and $1.5 trillion in supply chain purchase commitments, could reach $5 trillion by 2028. He argues these companies are making a "gargantuan bet" on AI growth that may not materialize, potentially leading to massive write-downs and a collapse in the valuations of AI labs.

Industry trends show a rise in "take-or-pay" contracts, where companies commit to payments regardless of resource usage. These commitments include an estimated $750 billion from Anthropic through 2030 and over $500 billion from OpenAI over the next decade. Alphabet Inc. also lists such contracts as part of $811 billion in purchase obligations.

Market strain is already evident. Oracle attempted to declare "force majeure" on a data center project in New Mexico, and several "magnificent seven" stocks have fallen from their peaks. To manage spending pressures, Microsoft shifted some data center leases from finance to operating leases, lowering its projected capital expenditure from $190 billion to $175 billion without reducing actual spending. While Microsoft stated it will constantly assess the demand and supply environment, analysts suggest such accounting shifts may be used to mask the impact of liabilities as they move onto balance sheets.