Combined quarterly depreciation charges for Meta, Microsoft, and Alphabet have surged from $8 billion to $22 billion and are projected to reach $30 billion by late 2026. This accounting line item tells a story that earnings calls obscure: technology’s most profitable companies are transforming from asset-light software businesses into capital-intensive infrastructure operators.
Bloomberg data reveals the hidden cost trajectory of AI ambitions. Alphabet leads the acceleration with quarterly depreciation growing from $4 billion to over $12 billion—a 3x increase reflecting massive cloud and AI infrastructure expansion. Microsoft follows at $9 billion quarterly, driven by Azure’s global data center buildout. Meta’s charges grow more modestly from $1 billion to $5 billion, constrained by lacking external cloud customers to justify infrastructure at competitorscale.
The financial implications compound across planning horizons. The $375 billion annual AI infrastructure spending creates 5-7 years of earnings pressure as assets depreciate. Meta and Microsoft face projected negative free cash flow in 2026 after shareholder returns. These aren’t theoretical accounting concerns—depreciation directly reduces reported earnings and constrains future investment capacity.
Framework Analysis
This depreciation surge marks a structural transformation that the Enterprise AI: Software to Substrate framework predicted. Software companies historically operated on economics where marginal costs approached zero—each additional user cost almost nothing to serve. AI infrastructure inverts this model. Each additional AI workload requires physical compute, power, and cooling that must be built, maintained, and eventually replaced.
What we witness is technology giants transitioning from software economics to utility economics. The comparison matters: utilities earn regulated returns on massive capital bases, not software margins on lightweight code. When Meta’s depreciation grows 5x while revenue grows more modestly, the margin profile shifts permanently.
Viewed through the Five Defensible Moats in AI lens, this capital intensity creates barriers that cut both ways. Competitors cannot easily match $375 billion in cumulative infrastructure spending—but neither can the spenders easily recover if AI monetization disappoints. The depreciation represents sunk cost that generates returns only if AI revenue materializes at scale.
Strategic Implications
For investors, these numbers demand model recalibration. Applying historical software multiples to companies with utility-like capital structures produces misleading valuations. The relevant comparisons shift from Adobe and Salesforce to data center REITs and power companies—businesses where return on capital, not growth rates, determines value.
The competitive dynamics create strategic divergence. Companies with existing cloud infrastructure—Microsoft Azure, Google Cloud, Amazon AWS—spread depreciation across paying customers. Meta bears infrastructure costs entirely against internal AI initiatives. This structural difference explains why Meta’s depreciation growth, though significant, trails competitors despite similar AI ambitions.
The state of AI data centersanalysis illuminates the physical reality behind these numbers. Each dollar of depreciation represents concrete and steel in specific locations, drawing specific amounts of power, requiring specific cooling capacity. The abstraction of cloud computing rests on very tangible infrastructure that must be financed, built, and accounted for.
The Deeper Pattern
The $30 billion quarterly depreciation figure represents technology’s most significant business model transformation since the shift to cloud computing. But where cloud transformed softwaredistribution, AI infrastructure transforms software economics. The asset-light model that created trillion-dollar valuations gives way to asset-heavy operations that generate returns through scale and utilization rather than marginal cost advantages.
Whether this transformation succeeds depends entirely on AI revenue that hasn’t yet materialized at scale sufficient to justify the infrastructure. The depreciation will occur regardless—it’s the revenue side that remains uncertain.
Key Takeaway
Big Tech’s AI bet transforms the industry’s most profitable companies from software economics to infrastructure economics. The $30 billion quarterly depreciation creates 5-7 years of earnings pressure. The gamble succeeds only if AI revenue scales faster than depreciation accumulates—a race against accounting reality.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
