Mind The GAAP Again

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A bit over three months ago I wrote Depreciation and started with this graph from my 2022 post Generally Accepted Accounting Principles about the way Bitcoin miners were inflating their profits through misleading depreciation of their rigs.

The key message of the graph is the contrast between the 5-year straight-line depreciation and the curves showing the value of the remaining Bitcoin that the rig will generate. I suggested that the same mismatch between straight-line depreciation and remaining value generation would apply to AI hardware. I don't claim to be the first to flag this issue; The Economist's The $4trn accounting puzzle at the heart of the AI cloud was about a month earlier.

About a month later I returned to AI economics with Mind The GAAP, but that was mostly focused on other parts of the puzzle.But now, thanks to Bryce Elder's Big tech’s $680bn buy-now-book-later problem it turns out that both Michael Burry of The Big Short and Morgan Stanley Research agree with me that there's a problem:

Below the fold I go into the details, with many thanks to Bryce Elder.