Wall Street bank Goldman Sachs has issued a warning for tech titans like Amazon.com Inc. (NASDAQ:AMZN) and Microsoft Corp.(NASDAQ:MSFT), noting that their Return on Equity (ROE) faces severe downward pressure as massive artificial intelligence capital expenditures trigger escalating “depreciation expenses.”

The Cost Of The Capex Boom

According to Goldman’s portfolio strategy report, the physical footprint required to support massive AI workloads is rapidly forcing these historically asset-light hyperscalers to become capital-intensive enterprises.

Consensus estimates show that AI hyperscalers—including Amazon, Microsoft, Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), Meta Platforms Inc. (NASDAQ:META), and Oracle Corp. (NYSE:ORCL)—are projected to spend an unprecedented $770 billion on capex in 2026, a sum equivalent to 100% of their collective cash flows from operations.

Goldman Sachs highlights that this explosive spending has caused tech leaders to grow significantly in “asset intensity,” resulting in steadily declining sales-to-asset turnover since the start of the AI boom.

During the next few years, rising hyperscaler depreciation costs will aggressively eat into profit margins. Specifically, analyst estimates imply that depreciation and amortization will climb from just 7% of hyperscaler revenues in 2022 to a staggering 12% by 2027.