Big Tech Stocks: Profit or Bankruptcy?

Increasing Earnings Concerns in Big Tech Stocks

Big technology companies' ability to increase their profits continues to sustain investor interest in these stocks. However, renowned investor Michael Burry has raised an important question, questioning whether these earnings are genuine.

Burry is known for his bet against the U.S. housing market before the 2008 financial crisis as the CEO of Scion Asset Management. He suggested that companies like technology giants Meta Platforms Inc. and Alphabet Inc. artificially boosted their earnings growth by extending the depreciation periods on their computer equipment.

Investors are aware that such accounting maneuvers are no longer a secret and expect profits to rise alongside hundreds of billions of dollars spent on data center equipment. This year, the stocks of the four major companies that spent the most on artificial intelligence infrastructure — Meta, Alphabet, Amazon.com Inc., and Microsoft Corp. — have gained in value.

However, Burry's involvement reminds investors of the risks associated with large expenditures. For instance, Meta's shares showed only a 4.2% increase in 2025 and lost 17% of their value in the second half of the year, becoming one of the worst-performing 25 stocks in the index. In contrast, Alphabet gained 47% this year, and Microsoft gained 20%.

Anthony Saglimbene, a senior market strategist at Ameriprise Financial Services Inc., said, "We are currently transitioning from the excitement of artificial intelligence to the proof of artificial intelligence."

The problem is how quickly depreciation occurs for assets such as graphic processing units and servers. In recent years, most major tech companies have sought to extend the useful lives of such equipment while trying to reduce cash-based burdens on net income. Meta extended this period from four to five years to five and a half years and estimated that the change would reduce its depreciation expenses by $2.9 billion in 2025.

Microsoft and Alphabet have also taken similar steps in recent years, claiming to be getting more efficiency from their equipment.

Stephen Glaeser, an accounting associate professor at the University of South Carolina, noted that evaluating whether this time frame is appropriate is difficult. Critics argue that, with chip manufacturers like Nvidia Corp. releasing chips at a faster pace, depreciation should accelerate. This view has been adopted by Amazon, which has shortened the useful life of its server equipment from six years to five.

Amazon and Microsoft officials did not comment on the matter. Meta and Alphabet also did not respond to requests for comment.

Microsoft CEO Satya Nadella emphasized the importance of continuing to acquire new chips to become more efficient during the company's first-quarter earnings call. He responded to a question about achieving sufficient investment returns by stating, “You are continuously modernizing and depreciating. This also allows you to increase efficiency through software.”

Discussions around these matters are becoming more crucial than ever in a period of rapidly rising capital expenditures. Over the next 12 months, the total capital expenditures of the four major spenders is expected to increase by about 40% to reach $460 billion. A significant portion of this will be spent on computer equipment.

Despite accounting measures, depreciation expenses continue to rise rapidly. Alphabet, Microsoft, and Meta had approximately $10 billion in depreciation expenses in the last quarter of 2023. In the quarter ending in September, this figure nearly doubled to $22 billion. Analysts expect this number to rise to nearly $30 billion by this time next year.

Nonetheless, this group reported third-quarter profits significantly exceeding Wall Street expectations. Results from Nvidia are expected next week, while the group known as the Fascinating Seven — including Apple Inc. and Tesla Inc. — is anticipated to have earned 27% more than last year. This is nearly double the projected 14% expansion at the beginning of the earnings season.

Such earnings, argues Osaic market strategist Phil Blancato, overshadow concerns like depreciation expenses. "Spending is quite stimulative for enhancing future earnings. Therefore, there is no reason for concern," he said.