Big Technology Stocks: Profit or Bankruptcy?

Increased Earnings Concerns in Big Tech Stocks

Big tech companies' ability to increase their profits continues to enhance investor interest in these stocks. However, famed investor Michael Burry has raised an important question about whether these earnings are real.

Burry, known for betting against the U.S. housing market before the 2008 financial crisis as CEO of Scion Asset Management, claimed that firms like tech giants Meta Platforms Inc. and Alphabet Inc. artificially inflated profit growth by extending the depreciation periods for computer equipment.

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

However, Burry's involvement serves as a reminder to investors about the risks of large expenditures. For instance, Meta shares only rose by 4.2% in 2025 and lost 17% of their value in the second half of the year, making it one of the worst-performing 25 stocks in the index. In contrast, Alphabet gained 47% this year, while Microsoft rose by 20%.

Anthony Saglimbene, a senior market strategist at Ameriprise Financial Services Inc., stated, “We are currently transitioning from AI excitement to AI proof.”

The issue lies in how quickly depreciable assets such as graphics processing units and servers lose value. In recent years, most major tech firms have attempted to reduce non-cash burdens on net income by extending the useful lives of such equipment. Meta raised this period from four to five years to five and a half years, forecasting that the change will reduce 2025 depreciation expenses by $2.9 billion.

Microsoft and Alphabet have also taken similar steps in recent years, stating they are getting more efficiency from their equipment.

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

Amazon and Microsoft officials did not comment on the matter. Meta and Alphabet, however, 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. Responding to a question about achieving sufficient investment returns, he stated, “You continually modernize and depreciate. This also allows you to increase efficiency through software.”

These discussions are becoming more important than ever in an era of rapidly increasing capital expenditures. Over the next 12 months, the total capital expenditures of the four major spenders is expected to increase by about 40%, reaching $460 billion. A significant portion of this will go toward computer equipment.

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

Still, this group reported third-quarter earnings well above Wall Street expectations. Results from Nvidia are expected to be announced next week, and the group known as the Magnificent Seven — which includes Apple Inc. and Tesla Inc. — is expected to generate 27% more profit than last year. This is nearly double the anticipated 14% expansion projected at the beginning of earnings season.

Such earnings are argued by Osaic market strategist Phil Blancato to outweigh concerns like depreciation expenses. “Expenditures are quite stimulative for increasing future earnings. Therefore, there is no reason to be concerned,” he said.