As the first chart shows, investment levels are higher than a few years ago. This matters because these investments must ultimately be depreciated. If revenues from AI-based services take time to materialise, rising depreciation charges could put pressure on operating margins. This risk is particularly relevant for AI infrastructure. Server hardware typically has a shorter replacement cycle than traditional data-centre assets, resulting in higher depreciation rates.<\/p>\n
Case in point: Alphabet. Based on consensus estimates, its FY26 capex-to-sales ratio is expected to reach around 44%, while depreciation is projected to be 14% of sales. If depreciation charges rise over time to reflect this higher level of investment, profit margins could come under pressure, creating a headwind for earnings per share. For Microsoft, the equivalent figures are 35% and 14%, while Amazon is expected to post ratios of 24% and 13%, respectively.<\/p>\n
During periods of heavy investment, capex typically exceeds depreciation. The AI sector is currently in such a phase. The key questions for investors are whether these investments generate returns above the cost of capital and whether the anticipated revenue growth ultimately materialises.<\/p>\n","protected":false},"excerpt":{"rendered":"As the first chart shows, investment levels are higher than a few years ago. This matters because these…\n","protected":false},"author":2,"featured_media":514086,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[365,363,364,111,139,69,145],"class_list":["post-514085","post","type-post","status-publish","format-standard","has-post-thumbnail","category-artificial-intelligence","tag-ai","tag-artificial-intelligence","tag-artificialintelligence","tag-new-zealand","tag-newzealand","tag-nz","tag-technology"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/514085","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=514085"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/514085\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/514086"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=514085"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=514085"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=514085"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}