'Big Short' fame Michael Burry’s depreciation gripe shines spotlight on big tech profits

Core Insights - The article discusses the growing concerns regarding the accounting practices of major tech companies, particularly in relation to their depreciation schedules for computing equipment, which may artificially inflate earnings growth [1][14][15] - Notable investors, including Michael Burry, have raised alarms about the sustainability of profits amid significant capital expenditures on AI infrastructure [1][14] - The four largest spenders on AI infrastructure—Meta, Alphabet, Amazon, and Microsoft—are projected to increase their combined capital expenditures by approximately 40% to $460 billion over the next year [10] Company-Specific Summaries - Meta: The company has extended its useful life estimates for equipment from four to five years to five and a half years, which is expected to reduce its 2025 depreciation expense by $2.9 billion. However, its stock performance has been lackluster, with only a 3% increase in 2025, significantly underperforming the Nasdaq 100 Index [1][6][11] - Alphabet: In contrast to Meta, Alphabet's stock has surged by 46% this year. The company has also adjusted its depreciation schedules, similar to other tech giants [1][11] - Amazon: Amazon has shortened the useful life of its server equipment from six years to five, reflecting a more conservative approach to depreciation amid rapid advancements in chip technology [7][15] - Microsoft: The company emphasizes the importance of continually upgrading its equipment to maximize efficiency and returns on investment. Microsoft has also extended the useful life of its assets, contributing to the ongoing debate about appropriate depreciation timelines [8][9][15] Industry Trends - The tech industry is experiencing a shift from "AI hype" to a demand for tangible results, as highlighted by market strategists [2][14] - Despite rising depreciation costs, which have increased from about $10 billion in Q4 2023 to nearly $22 billion in the most recent quarter, the overall profitability of these companies remains strong, with projected earnings growth of 27% for the "Magnificent Seven" [11][13][14] - The debate surrounding depreciation practices is intensifying as companies invest heavily in computing infrastructure, raising questions about the accuracy of reported earnings [10][15]