Zhi Tong Cai Jing·2025-12-23 13:16Core Viewpoint - The ongoing debate regarding the depreciation period for AI infrastructure among major US tech companies raises concerns for investors, especially as the market approaches 2026, suggesting potential risks associated with inflated valuations and the sustainability of the AI investment boom [1][4]. Group 1: Accounting Issues and Market Impact - Historical accounting scandals have led to significant market changes, notably the Sarbanes-Oxley Act, which aimed to curb blatant accounting fraud [2]. - Misleading but legal financial disclosures remain a substantial risk, as discrepancies between reported profits and actual economic fundamentals can lead to significant stock price declines, particularly for large-cap companies [2][5]. - The "Magnificent Seven" tech giants, which constitute about 35% of the S&P 500, are seen as key drivers of the market's recent performance, significantly influencing investor sentiment [3]. Group 2: Concerns Over Depreciation Practices - A recent tweet from a prominent short-seller has sparked discussions about the depreciation practices of major tech firms, raising fears of an impending AI bubble burst [4][5]. - Notable firms like Nvidia and Oracle are under scrutiny for potentially overstating their profitability by extending the depreciation periods of their assets, which could mislead investors about their financial health [6][7]. - The practice of extending asset lifespans has been observed across several tech giants, including IBM, which has seen a significant reduction in its depreciation expenses while its revenue has increased [7]. Group 3: Implications for Valuation and Cash Flow - Adjustments to depreciation schedules do not create real economic value but can enhance reported earnings, affecting metrics like EPS and P/E ratios, which may mislead investors regarding a company's valuation [8][9]. - The impact of depreciation on financial statements is primarily a non-cash expense, meaning it does not directly influence free cash flow, which is crucial for determining a company's intrinsic value [8][9]. - The ongoing debate about depreciation practices could lead to a reassessment of the actual profitability of these tech companies, especially in a market characterized by high valuations and concentrated stock ownership [12].