Earnings Growth Today but at What Cost?

S&P 500 earnings are projected to grow over 20% for the second straight quarter, but the surge is concentrated in semiconductor and AI infrastructure names, masking a critical timing mismatch in Big Tech accounting. Meta, Microsoft, Alphabet, Amazon, and Oracle are capitalizing AI infrastructure expenses as assets and spreading costs through depreciation, creating a $549 billion gap between projected 2026 capex of $760 billion and depreciation of just $211 billion. This accounting treatment defers near-term expense recognition but will eventually reverse, threatening margin compression as depreciation catches up to capital spending.

The concentration risk extends beyond earnings quality. SK Hynix plans a $29.4 billion US listing, adding to equity supply at a time when valuations are already stretched. Analysts warn the "golden window" for AI-driven earnings growth may close as the accounting tailwind fades and capital intensity weighs on cash flow generation in outer years.