Tech margins face upcoming depreciation headwinds
The speakers argued that massive AI capital expenditures will lead to margin compression for big tech companies as depreciation expenses begin to hit balance sheets.
The argument
The host expressed skepticism that there will be enough revenue to earn a decent return on invested capital for the current level of AI CapEx. He noted that Amazon has already flagged a 10% margin compression in AWS for 2026 due to the depreciation of previously spent capital.
The thesis, stress-tested
✓ What validates it
- ✓AWS operating margins declining in 2026 as guided
- ✓Rising depreciation and amortization lines on big tech income statements outpacing revenue growth
▸ Risks discussed
- ▸AI-driven revenue growth could scale faster than depreciation expenses
- ▸Tech companies could find ways to extend the useful life of their server infrastructure to delay depreciation
Hear it yourself
"Amazon said they're they're they already have 10 margin compression in AWS baked into the cake from depreciation of money they already spent before. So that's for 2026. Mhmm."
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