Key insights
- The post questions how major tech companies can report record net income while simultaneously having capital expenditures exceeding their annual earnings. It suggests that amortization, corporate bond issuance, and long-term debt are used to spread out the impact of capex, potentially masking the true financial picture and increasing leverage. The author expresses concern about the sustainability of this model, especially with rapidly depreciating assets like GPUs.
How companies like Google, Meta, Amazon etc can have Capex 2x their annual Net income in some case but yet have record net income reported at the same time?
Take Google for instance, annual net income is $120b yet they’re spending $190b in Capex? Amazon $80b in annual net income and $200b in Capex. Meta $70b in net income and $125b Capex.
I don’t get how spending more money than you earn in a single year can somehow equate to earning even more money?
I get amortization and tapping the corporate bond market is likely the way they’re keeping from reporting this capex cycle hit all at once, but some of these bonds are 30 years out and in extreme cases are even 100 years out. Seems like they’re trying to spread the capex out as long as they can to keep record profits being reported. That just sounds like leverage to me with a depreciating asset (GPUs need replacement much faster than the bond expiry) If you look at debt levels on these companies it’s exploded since 2023