{"id":43216,"date":"2026-08-05T23:56:00","date_gmt":"2026-08-05T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=43216"},"modified":"2026-08-06T09:47:30","modified_gmt":"2026-08-06T01:47:30","slug":"capex-drag-down-stock","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/","title":{"rendered":"CapEx drag down stock erode profit, case study"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_86 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Does_CapEx_drag_down_stock_erode_profit\" >Does CapEx drag down stock erode profit?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Two_key_questions\" >Two key questions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Why_is_this_important\" >Why is this important?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Typical_Cases_Study\" >Typical Cases Study<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Apple\" >Apple<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Alphabet\" >Alphabet<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Microsoft\" >Microsoft<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#The_other_five_tech_giants\" >The other five tech giants<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#What_are_the_accounting_standards_for_this\" >What are the accounting standards for this?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#When_does_interest_begin_to_accrue\" >When does interest begin to accrue ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#When_does_depreciation_begin\" >When does depreciation begin ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Depreciation_Life_of_Googles_Major_Assets\" >Depreciation Life of Google&#8217;s Major Assets<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#How_does_depreciation_erode_net_profit\" >How does depreciation erode net profit?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Profit_and_Loss_Statement_Transmission_Path\" >Profit and Loss Statement Transmission Path<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Example_of_depreciation_eroding_net_profit\" >Example of depreciation eroding net profit<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Characteristics_of_Depreciation_Eroding_Net_Profit\" >Characteristics of Depreciation Eroding Net Profit<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Latency_and_Time_Lag_Effect\" >Latency and Time Lag Effect<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Decoupling_of_Profit_and_Loss_from_Cash_Flow\" >Decoupling of Profit and Loss from Cash Flow<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Does_CapEx_drag_down_stock_erode_profit\"><\/span>Does CapEx drag down stock erode profit?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Two_key_questions\"><\/span>Two key questions<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This post aims to answer two major questions from investors regarding whether capital expenditures erode corporate profits and lower stock prices:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>When will the massive capital expenditures of tech giants, amounting to hundreds of billions of dollars in the past two years, begin to accrue interest and erode corporate profits according to accounting standards?<\/li>\n\n\n\n<li>When will the depreciation and amortization of the data centers, chips, and infrastructure assets that have been built at an unprecedented pace in the past two years begin?<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_is_this_important\"><\/span>Why is this important?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Ultimately, most investors, and indeed the vast majority, have one question in mind that they cannot find a reasonable answer to:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Two or three years ago, corporate AI capital expenditures were favored by investors, and stock prices soared as AI capital expenditures increased.<\/li>\n\n\n\n<li>However, starting last year, investors have disliked corporate AI capital expenditures, and stock prices have plummeted as AI capital expenditures have increased.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Typical_Cases_Study\"><\/span>Typical Cases Study<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Apple\"><\/span>Apple<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>For the two years prior to May of this year, Apple&#8217;s stock performance lagged behind other tech giants, largely because investors believed that &#8220;Apple&#8217;s AI capital expenditures were far lower than other tech giants, causing Apple&#8217;s AI strategy to lag behind its peers.&#8221;<\/p>\n\n\n\n<p><a href=\"https:\/\/www.inc.com\/phil-rosen\/stock-market-outlook-apple-nvidia-alphabet-microsoft-meta\/91380841\" target=\"_blank\" rel=\"noopener\">However, investment sentiment has shifted dramatically in the last six months. Apple, as the only tech giant that has almost entirely avoided the competition in AI capital expenditures, has become a safe haven for funds, driving its stock price up.<\/a><\/p>\n\n\n\n<p>By the end of July this year, Apple&#8217;s stock price had risen 25%, making it the best-performing of the seven major tech stocks, and its market capitalization exceeded $5 trillion for the first time, even reclaiming the title of the most valuable company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Alphabet\"><\/span>Alphabet<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>When Alphabet released its second-quarter earnings report, it again raised its 2026 capital expenditure forecast to between $195 billion and $205 billion, higher than its previous guidance of up to $190 billion.<\/p>\n\n\n\n<p>Please note that, aside from capital expenditures, the main figures in the second quarter financial report can be described as &#8220;very good,&#8221; with revenue, profit margin, and net profit all being impressive!<\/p>\n\n\n\n<p>The stock price immediately reflected this the following day, closing down 7.13%, simply because Alphabet&#8217;s cash flow had turned negative.<\/p>\n\n\n\n<p>Please note that prior to last year, Alphabet was the company with the most cash and cash equivalents among all US-listed companies, even surpassing Apple as commonly believed.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Microsoft\"><\/span>Microsoft<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Microsoft released its second-quarter earnings report, showing accelerated revenue growth for its Azure cloud business and the number of paid users of its AI assistant Copilot surpassing 30 million, with new paid users more than doubling compared to the previous quarter.<\/p>\n\n\n\n<p>Most importantly, Microsoft demonstrated restraint in its capital expenditures. Capital expenditures for the quarter totaled $41 billion, lower than the expected $42 billion; the company projects capital expenditures of approximately $175 billion for the next fiscal year, a downward revision from its previous estimate of $190 billion, unlike Alphabet and Meta, which significantly increased their spending guidance. Free cash flow for the quarter remained at $19 billion, demonstrating better financial discipline than some competitors. <\/p>\n\n\n\n<p>These figures have convinced investors that Microsoft&#8217;s massive investments in AI in recent years are beginning to yield returns, as Microsoft has finally answered a question the market has been asking for the past 18 months: whether its massive AI capital expenditures will generate sufficient returns. In its earnings report, Microsoft assured investors that it expects free cash flow to remain positive in the new fiscal year and will not turn negative due to AI investments.<\/p>\n\n\n\n<p>Microsoft&#8217;s stock immediately surged 15.51% the following day, marking its largest single-day gain since its IPO and the largest single-day increase in market capitalization in US stock market history. In the three trading days following the earnings report, the stock rose a cumulative 24.9%, its best three-day performance since October 2000, and completely recovered its year-to-date losses, returning its year-to-date returns to positive territory.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_other_five_tech_giants\"><\/span>The other five tech giants<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Without exception, the other five of the other seven tech giants, plus Oracle, have drawn investor backlash due to their competitive increases in AI capital expenditures. Their stock prices were all negative until the end of July this year.<\/p>\n\n\n\n<p>Furthermore, please note that, except for Tesla, the revenue reports of these five companies were actually quite strong. However, investors and Wall Street, under pressure, abandoned the stocks of these six tech giants, withdrawing funds and reversing their long-standing preference for them.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_accounting_standards_for_this\"><\/span>What are the accounting standards for this?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>According to US Generally Accepted Accounting Principles (GAAP), neither &#8220;interest treatment&#8221; nor &#8220;depreciation commencement&#8221; requires waiting &#8220;several years.&#8221; Accounting treatment is triggered immediately based on the asset&#8217;s establishment status and placement in service.<\/p>\n\n\n\n<p>The following is a detailed explanation of the specific accounting standards and procedures.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"When_does_interest_begin_to_accrue\"><\/span>When does interest begin to accrue ?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>According to US GAAP (ASC 835-20: Interest Capitalization Standard):<\/p>\n\n\n\n<p>During the construction period (Capitalized Interest): When Google begins investing in and constructing assets such as data centers, and the company incurs debt (incurring interest costs), interest begins to accrue immediately. However, before construction is completed, this interest cost is not directly recorded as a current expense in the income statement; instead, it is &#8220;capitalized&#8221; and included in the original cost of the asset (becoming part of the carrying amount of the fixed asset).<\/p>\n\n\n\n<p>Upgraded to Service (Expense Turning Point): Once the data center is completed and reaches its intended operational status, interest capitalization ceases. Subsequently, the interest expense incurred from this financing will be immediately transferred to the current period&#8217;s profit and loss statement (P&amp;L) and recognized as &#8220;Interest Expense&#8221;.<\/p>\n\n\n\n<p>In summary: As long as there is capital investment and debt interest, accounting for interest (capitalization or expense) occurs immediately in the current period, without waiting for several years.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"When_does_depreciation_begin\"><\/span>When does depreciation begin ?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>According to <strong>US GAAP (ASC 360: Fixed Assets Standard)<\/strong>:<\/p>\n\n\n\n<p><strong>During construction and installation (no depreciation)<\/strong>: During the construction of the data center or the purchase and installation of servers, these capital expenditures are initially classified in the &#8220;Construction in Progress (CIP)&#8221; account on the balance sheet. No depreciation is recognized during this period.<\/p>\n\n\n\n<p><strong>Reaching Planned-in-Service (Placed in Service, Depreciation Begins)<\/strong>: The precise starting point for depreciation is the period (month\/quarter) when the asset reaches its planned-in-service status and becomes operational, regardless of the purchase or payment date.<\/p>\n\n\n\n<p><strong>Data Center Buildings and Land Improvements<\/strong>: Depreciation begins when a occupancy permit is obtained, the main structure is completed, and the site is ready for operation.<\/p>\n\n\n\n<p><strong>Servers and Network Hardware<\/strong>: Depreciation begins when the server is fully deployed, passes testing, and is officially connected to Google&#8217;s computing network.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Depreciation_Life_of_Googles_Major_Assets\"><\/span>Depreciation Life of Google&#8217;s Major Assets<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Once an asset is officially placed in service and depreciation begins, Google will allocate costs over its estimated useful life using the straight-line method.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><td>Asset Type<\/td><td><strong>GAAP guide<\/strong><\/td><td><strong>Google&#8217;s typical service life<\/strong><\/td><\/tr><\/thead><tbody><tr><td><strong>Servers<\/strong><\/td><td>Depreciation begins in the month of launch and operation<\/td><td><strong>6 <\/strong>years (Recent changes in accounting estimates)<\/td><\/tr><tr><td><strong>Network Equipment<\/strong><\/td><td>Depreciation begins in the month of launch and operation<\/td><td><strong>6 <\/strong>years<\/td><\/tr><tr><td><strong>Buildings<\/strong><\/td><td>Depreciation begins in the month the project is completed and the license is obtained<\/td><td><strong>20 ~ 40 <\/strong>years<\/td><\/tr><tr><td><strong>Land<\/strong><\/td><td>Depreciation not applicable<\/td><td><strong>Unlimited (excluding depreciation)<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_does_depreciation_erode_net_profit\"><\/span>How does depreciation erode net profit?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Once fixed assets reach their intended use (placed in service) and depreciation begins, it gradually erodes the company&#8217;s net profit through the income statement.<\/p>\n\n\n\n<p>The core mechanism and transmission path are as follows.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Profit_and_Loss_Statement_Transmission_Path\"><\/span>Profit and Loss Statement Transmission Path<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Depreciation is a non-cash expense, categorized under different cost or expense items in the profit and loss statement based on the asset&#8217;s usage:<\/p>\n\n\n\n<p><strong>Revenue<\/strong><\/p>\n\n\n\n<p><strong>Cost of Goods Sold \/ Cost of Revenue<\/strong> &lt;&#8211; Includes depreciation of operating assets such as data center equipment and servers<\/p>\n\n\n\n<p>= Gross Profit<\/p>\n\n\n\n<p><strong>Operating Expenses (OPEX)<\/strong> &lt;&#8211; Includes depreciation of administrative\/R&amp;D assets such as headquarters buildings and R&amp;D equipment<\/p>\n\n\n\n<p>= Operating Income<\/p>\n\n\n\n<p><strong>Pre-tax\/Other Items<\/strong><\/p>\n\n\n\n<p>= Net Income<\/p>\n\n\n\n<p><strong>Cost of Revenue<\/strong>: For example, the depreciation of servers, network equipment, and data center buildings within Google&#8217;s data centers. This depreciation is directly included in the cost of providing cloud and search services, directly lowering the gross margin.<\/p>\n\n\n\n<p>Operating Expenses (OPEX): For example, depreciation of hardware used in corporate headquarters or R&amp;D teams is classified as administrative or R&amp;D expenses, lowering the operating margin.<\/p>\n\n\n\n<p>Regardless of classification, depreciation in each period reduces pre-tax profit by a factor of 1, ultimately decreasing net profit.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Example_of_depreciation_eroding_net_profit\"><\/span>Example of depreciation eroding net profit<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Assume Google invests $12 billion to build a data center and purchase servers, with an estimated useful life of 6 years, using the straight-line method (no residual value):<\/p>\n\n\n\n<p>Annual depreciation expense = $12 billion \/ 6 years = $2 billion\/year<\/p>\n\n\n\n<p>For the first 6 years after the asset goes live, there will be an additional $2 billion expense on the income statement each year &lt;&#8211; This is the key point.<\/p>\n\n\n\n<p><strong>Pre-tax Profit (EBT)<\/strong>: Directly reduced by $2 billion annually.<\/p>\n\n\n\n<p><strong>Net Income<\/strong>: Assuming an effective income tax rate of 20%, depreciation has a &#8220;tax shield&#8221; effect, resulting in an actual erosion of net profit of: Net Profit Reduction = $2 billion x (1 &#8211; 20%) = $1.6 billion\/year<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Characteristics_of_Depreciation_Eroding_Net_Profit\"><\/span>Characteristics of Depreciation Eroding Net Profit<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Latency_and_Time_Lag_Effect\"><\/span>Latency and Time Lag Effect<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>At the time of capital expenditure (CapEx) (e.g., when paying for server purchases), net profit is completely unaffected (only cash decreases and fixed assets increase on the balance sheet). Only after the equipment is built and put into operation does depreciation begin to steadily erode net profit for years or even decades to come.<\/p>\n\n\n\n<p>Warning: When a company undertakes explosive, massive capital expenditures in the short term (such as the AI \u200b\u200binfrastructure war), current net profit may still appear impressive; however, once these assets are gradually deployed over the next 1-2 years, the enormous depreciation expenses will erupt, exerting a long-term downward pressure on future net profit margins.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Decoupling_of_Profit_and_Loss_from_Cash_Flow\"><\/span>Decoupling of Profit and Loss from Cash Flow<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Depreciation is merely an accounting cost allocation; the company does not need to spend any cash in the period in which depreciation is recorded.<\/p>\n\n\n\n<p><strong>Net Income<\/strong>: Lowered by depreciation expenses.<\/p>\n\n\n\n<p><strong>Operating Cash Flow<\/strong>: Because depreciation is a non-cash expense, it is added back when calculating the cash flow statement; therefore, depreciation does not directly reduce current period operating cash flow.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"92\" height=\"80\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2026\/08\/capex_share-Custom.jpg\" alt=\"CapEx drag down stock erode profit\n\" class=\"wp-image-43221\"\/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/08\/05\/capex-drag-down-stock\/\">CapEx drag down stock erode profit, case study<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2026\/05\/16\/top-10-ai-corp-capex-debt\/\">Top 10 AI corp CapEx, debt, and FCF<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/10\/26\/ai-jeopardizes-cash\/\">AI jeopardizes cash flow and profits<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2024\/07\/20\/generative-ai-cost\/\" target=\"_blank\" rel=\"noreferrer noopener\">How Much Does Generative AI Cost?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/08\/28\/ai-investment-will-increase\/\">AI investment will only increase because no one can afford to miss out on the Fourth Industrial Revolution<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/08\/16\/ai-capital-expense\/\">How staggering are 5 Tech giants&#8217; AI capital expense<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/08\/28\/ai-investment-will-increase\/\">AI investment will only increase because no one can afford to miss out on the Fourth Industrial Revolution<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/06\/02\/magnificent-seven-dark-time\/\">Magnificent Seven are experiencing a rare dark time<\/a>&#8220;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>This article aims to answer two questions: When will interest begin to accrue and  CapEx drag down stock erode profit? When will depreciation and amortization begin?<\/p>\n","protected":false},"author":1,"featured_media":43221,"comment_status":"closed","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1114,104,1492,943],"tags":[2,227,97,95,721,3,339],"class_list":["post-43216","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-capex","category-artificial-intelligence","category-datacenter","category-fasb","tag-aapl","tag-amzn","tag-goog","tag-googl","tag-meta","tag-msft","tag-orcl"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/43216","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=43216"}],"version-history":[{"count":24,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/43216\/revisions"}],"predecessor-version":[{"id":43295,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/43216\/revisions\/43295"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/43221"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=43216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=43216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=43216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}