Earnings Growth Today but at What Cost? | Investing.com
A recent article by the Wall Street Journal entitled "Turbocharged Earnings Are Pushing Stocks Higher". There’s a Catch raises an important issue for investors of the megacap AI-tech companies. Wall Street analysts expect S&P 500 earnings growth to top 20% for a second consecutive quarter; however, the earnings growth is not widespread.
The predominant bulk of the earnings growth is being driven by semiconductor makers and AI infrastructure companies. Todd Castagno, a Morgan Stanley analyst, questions how long some tech companies can continue to grow earnings at such historical rates. To wit, he deems the current period of growth as “a golden window where everybody looks good.” The reason for his pessimism is how hyperscalers account for expenses.
When Nvidia sells a chip, it books revenue immediately. But the hyperscalers buying those chips (Meta, Microsoft, Alphabet, Amazon, and Oracle) treat the expenses as capital assets, allowing them to spread the cost over years as depreciation. On an aggregated basis, the revenue hits as earnings today, but the expenses are limited. For context, the five major hyperscalers spent $412 billion in capital expenditures in 2025, with estimates for 2026 reaching $760 billion. Depreciation expenses for 2026 are estimated at only $211 billion. The $549 billion gap will ultimately be accounted for.
The bottom line is that there are significant, growing expenses that will hit hyperscalers’ income statements in the future. Can revenue expand quickly enough to offset the coming bulge in expenses? Answering the question is tricky, making it difficult to predict margins for 2028 and beyond. Per the article:
And, as Zion Research Group founder David Zion says, “analyst depreciation estimates for each of these companies are all over the place.” He says that the “consensus D&A (depreciation and amortization) estimates could be systematically understated.”
On Tuesday night, Korean memory chip maker SK Hynix announced plans for a $29.4 billion US listing. This would be the biggest American Depositary Receipt offering in history, surpassing Alibaba’s $25 billion 2014 debut. The offering is expected to begin trading on July 10.
We have written several commentaries and articles on the coming surge in equity issuance. In The IPO Boom, we liken the new issuance to adding marbles to a jar. To wit:
"Think of the stock market as a jar full of marbles. For the new SpaceX and other marbles to fit in the jar, either the jar must be enlarged, or some of the other marbles must shrink.
Given the current monetary environment, the jar, or available capital, is unlikely to grow significantly. The Fed is no longer providing the flood of liquidity that enabled the easy digestion of the SPAC boom in 2020 and 2021. Rates are higher, savings rates are lower, and the equity market is already trading at elevated valuations. Simply put, there isn’t much extra liquidity. Thus, the other option is for the collective market cap of everything else to decline.
In reality, there will be some shrinkage of marbles and an enlargement of the jar. The extent of both will help determine how the IPO boom is received and its impact on other stocks. "
The newest marble, so to speak, arrives weeks after the SpaceX IPO and against a pipeline of IPOs, Anthropic, and OpenAI, as well as secondary offerings from many of the large hyperscalers.
SK Hynix’s strategic logic is straightforward. SK Hynix trades at a meaningful discount to Micron, despite being the dominant supplier of high-bandwidth memory chips that power Nvidia’s AI GPU stacks. A US listing gives the company access to a deeper, more liquid investor base. Taiwan Semiconductors did a similar offering, and its US ADR trades at a persistent premium to its Taiwan-listed shares.
As shown below, SK Hynix shares have already surged 300% in 2026 and more than 800% over the last full year, driven by strong HBM demand. The US listing gives American investors a direct path into that trade but adds more supply to a growing wave of supply.