Michael Burry, the investor famed for predicting the 2008 subprime mortgage crisis, recently shared significant market insights. He stated that the current hot rally in US stocks is unlikely to immediately turn into a devastating crash. However, he also presented detailed data proving that over the past decade, Wall Street has systematically overestimated the real earnings of tech giants by more than forty percent, with ordinary investors footing the bill.

Dismissing the idea of an imminent sharp peak and crash, Burry suggested the market is more likely to experience volatile fluctuations. In a discussion with his Substack subscribers last Sunday, he clarified that a "sharp top" formation, where the market spikes vertically before immediately crashing, is extremely rare in market history, "like a unicorn, just a myth until proven otherwise." He predicted the market would more likely see a choppy path forward, with future volatility, more new highs, and significant pullbacks. Looking back, he suggested the current rally might eventually be viewed as part of a bull market top.

This view followed his post on platform X last Friday, when the S&P 500 hit a record high of 7126 points after a 12% surge in 13 trading days. Burry wrote, "The market has never had a sharp top," and referenced his late-March view that "being short is not always right." By Monday's close, the Nasdaq had ended a 13-day winning streak, and the S&P 500 had edged lower.

During the discussion, Burry also shared a screenshot of the latest BTIG report titled "Rarefied Air." The firm's chief market technician, Jonathan Krinsky, and his team noted that while the overall market backdrop is positive, it appears slightly overheated and due for a consolidation phase. The report highlighted that the S&P 500's three consecutive weekly gains of over 3% each mark only the third such occurrence since 1980. Additionally, the Philadelphia Semiconductor Index trading more than 16% above its daily moving average has happened only 13 times since 1994; such instances have typically been a negative signal for the following 10 trading days but a positive one for the subsequent 30 days.

Beyond technical analysis of indices, a deep-dive study published on Burry's Substack offered a more pointed warning. By analyzing thousands of annual reports from major tech companies in the Nasdaq 100 over the past decade, he reached a startling conclusion: the tech earnings Wall Street has led investors to believe in over the past ten years are 42% higher than what actually existed.

Burry identified the core issue as the accounting treatment of stock-based compensation (SBC). He pointed out that tech companies commonly exploit ambiguities in Generally Accepted Accounting Principles (GAAP) by treating SBC as "free" employee compensation, not fully accounting for it as a real cost on the income statement. His calculations show that simply excluding the impact of SBC, the earnings of major Nasdaq 100 tech companies are overstated by nearly 20%. "For every $1 of GAAP EPS recognized, shareholders actually see only 83.49 cents," he noted.

Burry specifically named several companies where this issue is prominent, including Meta Platforms Inc. (estimated earnings overstatement around 20%), Datadog Inc., Workday Inc., Axon Enterprise Inc., Shopify Inc., Palantir Technologies Inc., Marvell Technology Inc., CrowdStrike Holdings Inc., and Zscaler Inc. He further highlighted that Tesla Inc.'s use of stock-based compensation is particularly large-scale; removing Tesla from the sample reduced the overall overstatement percentage from around 20% to 12.5%.

According to Burry's statistics, over the ten years through fiscal 2025, 97 tech companies in the Nasdaq 100 reported cumulative GAAP net income of $4.9 trillion. However, Wall Street analysts commonly add back stock-based compensation to earnings, inflating this figure to $5.8 trillion and creating a $1.7 trillion "earnings illusion."

"Where there is profit, there is manipulation," Burry wrote bluntly in his column, "Cassandra Unchained." This is not the first time he has questioned tech companies' accounting practices; he previously warned that AI giants artificially inflate earnings by understating asset depreciation. Since announcing at the end of last year that he no longer manages client funds, Burry has focused on investing his own capital and sharing his strategies on Substack. He has long expressed skepticism towards the AI boom driving markets to repeated highs, frequently warning of overvaluation, questionable accounting, overinvestment, and circular trading within the sector.