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AI's New Threat: Depreciation Fears Erode Tech Stocks
22 Nov
Summary
- Short sellers warn AI chip depreciation could exceed Big Tech profits.
- Estimated depreciation of AI assets could reach $500 billion annually.
- Accelerated depreciation models suggest AI spending tops internet boom.
Concerns are mounting over the potential impact of depreciation on artificial intelligence investments, with prominent short sellers highlighting the risks. Michael Burry and Jim Chanos are among those sounding the alarm, suggesting that Big Tech companies may be understating depreciation expenses for their AI hardware. They posit that the rapid obsolescence of GPUs and semiconductor chips could lead to substantial financial burdens, potentially exceeding company profits in the coming years.
Analysts estimate that the value of AI assets held by hyperscalers could reach trillions of dollars. If depreciation rates are applied realistically, based on a shorter two-to-three-year lifecycle for AI chips rather than the commonly assumed five to six years, annual depreciation expenses could soar to hundreds of billions. This scenario could significantly drag down net income, even for highly profitable tech giants.
While this depreciation argument is not yet mainstream on Wall Street, it is causing unease in the AI sector. The accelerated depreciation of AI chips, when adjusted for GDP, places current AI buildout spending at the top, exceeding even the internet boom. This emerging threat casts a shadow over the once-booming AI trade, with market watchers closely observing how these depreciation fears will impact future earnings and stock valuations.
