From Seekingalpha · Dane Bowler · · 2m
S&P Earnings Overstated by AI Depreciation Shifts
AI capex deferrals inflate S&P 500 earnings by $854B, pushing valuation into bubble territory.
In brief
AI capex deferrals inflate S&P 500 earnings by $854B, pushing valuation into bubble territory. S&P 500 earnings are overstated by $854B due to AI-related depreciation schedule delays, making the index bubble-like at 24.8X forward multiples. Originally reported by Seekingalpha.
S&P 500 Trading at High Multiples
The S&P 500 trades at 18.8X forward and 26.15X trailing earnings, both well above historical norms and likely understated.
AI Capex Inflates Earnings
AI capex expenses are being deferred via extended depreciation schedules, artificially inflating current S&P 500 earnings by approximately $854B.
True Valuation Higher
Adjusted for true cash outlays, the S&P 500's forward multiple would be 24.8X, placing it in bubble territory.
Historical Valuation Context
Yardeni Research shows S&P 500 forward multiples at 18.8X, with valuations only this high briefly during the pandemic and dot-com bubble.
S&P 500 Earnings Breakdown
According to Morningstar, the S&P constituent total market cap is $65.93 trillion, implying forward earnings of $3.5T.
Chip and Memory Contribution
About $577.7B of S&P 500 earnings comes from chip and memory companies, representing 16.5% of total earnings.
Revenue vs. Expense Imbalance
Chip and memory companies anticipate $1.091T in 2027 revenues, but only $1.04T of expenses are recorded as S&P 500 costs.
Depreciation Schedule Distortion
The entirety of $577.7B earnings are counted toward 2027 S&P 500 earnings, while only 18% of $1.04T expenses are expensed in 2027.
Hyperscaler Depreciation Extensions
Alphabet extended depreciation from 4-5 years to six years in 2023, Meta to 5.5 years in 2025, and Microsoft to six years.
Earnings Gap Calculation
This creates an $854B gap between cash S&P 500 companies pay versus what shows up as expenses.
Valuation Impact
If S&P 500 companies treated all $1.04T as expenses, earnings would drop by $854B, pushing forward multiples to 24.8X.
Bubble Territory Risk
The 24.8X forward multiple is astronomically high, placing S&P 500 in bubble territory with significant earnings growth pressure.
Future Earnings Pressure
As depreciation catches up, future earnings growth will be significantly pressured, exposing valuation risk in 2028 and beyond.
The one thing
S&P 500 earnings are overstated by $854B due to AI-related depreciation schedule delays, making the index bubble-like at 24.8X forward multiples.
