Nvidia and AI Capex Depreciation Risk Could Reverse Record Quarter Earnings

The second‑quarter earnings season is delivering results that meet or exceed analysts' upward‑revised Wall Street forecasts, pushing the S&P 500 toward more than 20% earnings growth for a second consecutive quarter. However, a sizable portion of this strength stems from an accounting timing issue: the depreciation expense from AI‑related capital spending has not yet entered income statements.

When chipmakers such as Nvidia sell a chip, they recognise revenue immediately, while hyperscalers that purchase the chips record the spend as a capital asset and amortise it over several years. This creates an earnings boost for sellers now and a future cost head‑wind for buyers. Analysts have consequently lifted full‑year earnings estimates, describing the situation as a "golden window"—a period where earnings appear robust even though the depreciation bill is still pending. The looming depreciation could turn the current tailwind into a headwind, dampening future earnings growth.

Todd Castagno of Morgan Stanley warned that the AI capex depreciation risk is the hidden catch behind the seemingly strong earnings landscape.