Hyperscaler earnings face upcoming depreciation drag
The guest argued that massive capital expenditures by major tech hyperscalers will trigger a delayed depreciation bill that will negatively impact future earnings growth.
The argument
Lance Roberts noted that while five major hyperscalers plan to spend $760 billion this year, they will only depreciate about $211 billion of it in year one. The remaining depreciation expense will hit balance sheets over the next couple of years, presenting an overlooked headwind to S&P 500 earnings growth.
The thesis, stress-tested
✓ What validates it
- ✓Rising depreciation and amortization expenses on hyperscaler quarterly reports
- ✓Downward revisions to medium-term earnings growth estimates for mega-cap tech
▸ Risks discussed
- ▸Bonus depreciation rules could allow faster write-offs than expected
- ▸Revenue growth from AI services could completely overwhelm the depreciation drag
Hear it yourself
"Palantir fell I think Apple fell actually over 6%. Palantir fell 5%. Yeah. This was both yesterday. And, you know, and the market didn't flinch. I was amazed. The the the the were making up the difference. Well, I know. It's because semis were making up the difference. So my question is is when the bloom comes off the semi rose, it's not like the Mag seven are necessarily as attractive as they were three months ago or so. Right? So If you just take a look at the heat map today so this is early Friday morning. But if you take a look at the heat map today, semiconductors are all in the red pretty sharply."
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