Big Tech AI Spending: Depreciation Bill Looms

Big Tech's aggressive spending on artificial intelligence infrastructure, totaling over $1 trillion, presents a deferred financial reckoning. While capital expenditures are significant now, the true cost will emerge as these assets depreciate over time, potentially impacting profit margins and earnings.

Microsoft (NASDAQ: MSFT) has adjusted its accounting to extend data center useful life to 25 years to mitigate depreciation charges. However, Meta Platforms (NASDAQ: META) has already seen its operating margin fall to 31% from 43% year-over-year, citing higher depreciation as a contributing factor. Similar pressures could arise for cloud services like Microsoft Azure and Amazon Web Services if depreciation outpaces revenue growth.

Alphabet (NASDAQ: GOOGL) reported negative free cash flow of $5.86 billion in a single quarter and suspended its buyback. Amazon (NASDAQ: AMZN) spent $54.21 billion in the June quarter alone. These expenditures highlight the scale of investment, with the full financial implications dependent on how depreciation is accounted for and its pace relative to cloud revenue.

CoreWeave (NASDAQ: CRWV) is noted as being under pressure, with its stock falling. This comes as the broader tech sector grapples with the long-term financial implications of significant AI infrastructure build-outs.