Michael Burry claims Nasdaq 100 earnings are overstated by 42%

Investors in the Nasdaq 100 are paying for earnings that do not exist. Michael Burry claims that Wall Street forward earnings estimates for the index are 42% higher than actual owners' earnings adjusted for stock-based compensation costs.

Burry reached this conclusion after reviewing more than 1,000 annual reports from Nasdaq 100 companies over the last decade. He argues that companies and analysts ignore the full cost of stock-based compensation, specifically the money spent on share buybacks to offset dilution and the net taxes related to vesting shares.

Under generally accepted accounting principles, Burry calculates that Nasdaq 100 earnings are overstated by nearly 20%. This means an index trading at a GAAP price-to-earnings ratio of 25 actually carries a real multiple closer to 30.

Over the decade ending in fiscal 2025, the 97 primary constituents of the Nasdaq 100 reported $4.9 trillion in cumulative GAAP net income. Wall Street analysts pegged that figure at $5.8 trillion. Burry's analysis puts true owners' earnings at $4.1 trillion. The difference between Wall Street estimates and true owners' earnings is $1.7 trillion.