AI stock valuations face a depreciation reckoning
The bear case argued by Fred Hickey suggests that a looming wave of asset depreciation will severely weigh on the future profitability and earnings of major technology and AI hyperscalers.
The argument
Hickey argued that current price-to-earnings ratios for major tech companies are artificially low because they do not fully account for upcoming depreciation schedules and are boosted by non-recurring, one-time gains from private frontier model valuations. When adjusting for these factors, he estimates the average price-to-earnings ratio for these companies is closer to 67, which he believes will eventually force Wall Street to revise earnings estimates downward.
The thesis, stress-tested
✓ What validates it
- ✓A sustained trend of downward revisions in forward earnings estimates for major tech firms
- ✓Rising depreciation expenses on quarterly income statements that outpace revenue growth
▸ Risks discussed
- ▸CapEx investments successfully generate offsetting revenue growth
- ▸Wall Street continues to look through depreciation to focus on top-line growth
- ▸Tax write-offs from CapEx mitigate the bottom-line impact
Hear it yourself
"But you're you're you're getting some of these these substantial one time gains that are making their way through to the earnings line, that, a, aren't necessarily gonna be recurring, and, b, are are kind of based on the rich value the the maybe phone evaluations that are going on in in in the private companies in the sector."
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