The $107 Billion Blind Spot: Using Daloopa’s MCP to Uncover Depreciation Hidden in Big Tech’s Income Statements

A recent Wall Street Journal article, “Big Tech Accounting Creates a Blind Spot in the AI Boom,” highlights a problem that anyone analyzing hyperscaler financials knows intimately: depreciation expense is difficult to find.

Not because the companies don’t report it but the numbers are buried in their cash flow statements or in 10-K footnotes. The problem is where it shows up on the income statement. At Microsoft, Alphabet, Amazon, Meta, and Oracle, depreciation isn’t disclosed as a standalone line item. It’s allocated across COGS, R&D, and SG&A expenses. For investors trying to understand the true cost of the AI infrastructure buildout, this creates a genuine blind spot.

On November 4, 2024, the FASB issued ASU 2024-03, which requires disaggregated disclosure of income statement expenses for public business entities (PBEs). The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements.

With these five companies projecting around $695 billion in combined capital expenditure for 2026, an incredible 83% increase from $379 billion in 2025, depreciation is no longer a minor figure. It’s arguably the most important non-cash expense on Big Tech’s income statement. And it’s set to grow significantly.

I decided to quantify this problem using Daloopa’s Scout MCP integration in Claude, pulling six years of data across all five hyperscalers in eminutes. Here’s what I discovered.

The Problem: Depreciation Spread Across Three Line Items

When Amazon spends $131.8 billion in capital expenditures (as it did in FY2025), those assets hit the balance sheet as property, plant & equipment. Over the following years, that cost flows through the income statement as depreciation, but not in one place.

Consider how each company handles it:

• Amazon reports depreciation of property and equipment within cost of sales (for fulfillment and AWS infrastructure) and within technology and content (for R&D-related assets). There is no single line item on the income statement that tells you total depreciation expense.
• Microsoft allocates depreciation into COGS, R&D and SG&A. The consolidated figure only appears in the cash flow statement’s D&A addback or in annual report footnotes.
• Alphabet combines depreciation with impairment charges in its disclosures, and distributes the cost across its operating expense categories.
• Meta embeds depreciation within cost of revenue and R&D, with the total only reconcilable through the cash flow statement.
• Oracle follows the same pattern, splitting depreciation across cost of services, R&D, and G&A.

For a fundamental analyst, this means you can’t simply glance at the income statement and know how much of operating income is being consumed by depreciation. You have to dig for it across filings, footnotes, and supplemental disclosures.

The Solution: Daloopa MCP in Claude

This is exactly the type of problem Daloopa was built to solve.

Using Daloopa’s MCP (Model Context Protocol) integration directly inside Claude, I was able to:

1. Discover all five companies in Daloopa’s database with a single API call using ticker symbols
2. Search for the exact depreciation series. Daloopa has already done the work of isolating total depreciation expense from the cash flow statement and footnotes, standardized across companies
3. Pull six years of annual data (FY2020–FY2025) for depreciation, revenue, operating income, capital expenditures, and operating cash flow across all five companies
4. Build a comparative analysis with computed ratios (depreciation as % of revenue, depreciation as % of operating income, capex as % of CFO) instantly

The entire process from initial query to a complete, interactive dashboard with seven chart views and five data tables took a single conversation in five minutes.

What the Data Reveals

Depreciation Is Exploding

Total depreciation expense across the five hyperscalers increased from $47.7 billion in FY2020 to $106.9 billion in FY2025, representing a 17.5% compound annual growth rate. And this is before the depreciation wave from 2024 and 2025’s record capital spending has fully hit.

Amazon alone recognized $41.9 billion in depreciation in FY2025. To put that in perspective, that’s larger than the total annual revenue of companies like Starbucks or Nike.

Depreciation as % of Operating Income: The Real Margin Story

This is where the analysis gets interesting. Depreciation as a percentage of operating income reveals how much of a company’s profitability is being consumed by infrastructure costs:

A few standout observations:

Amazon’s depreciation accounted for 52.4% of its operating income in FY2025. In FY2022, during the post-pandemic margin compression, depreciation accounted for 203.7% of operating income, meaning Amazon’s infrastructure costs alone exceeded its operating profit. The company has improved, but depreciation is still its largest expense compared to profits.

Oracle’s ratio nearly tripled from 9.9% to 21.9% as the company pivoted aggressively toward cloud infrastructure (i.e. OCI). With FY2026 capex guidance of $50 billion (up from $21.2 billion in FY2025), this ratio is poised to rise significantly.

Microsoft and Alphabet demonstrated the strongest operating leverage. Despite extensive AI infrastructure expansions, both companies increased operating income quickly enough to reduce depreciation’s share. Microsoft’s 17.1% and Alphabet’s 16.4% are the lowest in the group, highlighting their ability to apply the AI investments to their high-margin core businesses, not just their cloud businesses.

The Capital Expenditure Tsunami

The depreciation story is really a forward-looking capex story. What companies spend on infrastructure today becomes depreciation expense over the next 5–6 years. And the 2026 guidance numbers are staggering:

This $695 billion in 2026 capex will generate depreciation charges for years to come. Assuming a blended 5-year useful life, we’re looking at an incremental ~$139 billion in annual depreciation expense layering onto these companies’ income statements on top of the existing base.

Meta’s CFO explicitly warned investors that “higher depreciation” would be one of the primary drivers of expense growth in 2026. Alphabet similarly flagged that expenses would “meaningfully increase” due to depreciation and energy costs. These aren’t abstract accounting concepts anymore. They’re the dominant factor shaping margin trajectories.

Capex as % of Operating Cash Flow: The Free Cash Flow Squeeze

Perhaps the most alarming metric in the analysis: how much operating cash flow is being consumed by capital expenditure.

Oracle is already spending more than 100% of its operating cash flow on capex, with free cash flow negative $10 billion in Q2 FY2026 alone. Barclays has warned the company could face liquidity pressure by late 2026. Its bonds, while still technically investment-grade rated, are trading at credit default swap spreads reminiscent of the 2009 financial crisis.

At 94.5%, Amazon generated virtually no free cash flow in FY2025 despite $139.5 billion in operating cash flow. With $200 billion in guided capex for 2026, Amazon will need to either grow operating cash flow proportionally or accept negative free cash flow.

The 2026E estimates suggest these ratios will worsen before they improve with Oracle approaching 227% and Amazon at 125% on a guided basis.

Conclusion

The AI infrastructure boom is creating a depreciation time bomb that’s largely invisible on Big Tech’s income statements. As $695 billion in 2026 capex works its way through 5-6 year depreciation schedules, the impact on operating margins will be substantial and it’s being obscured by accounting practices that spread depreciation across cost of revenue, R&D, and SG&A.

Morgan Stanley estimates that Microsoft, Oracle, Meta, and Alphabet alone could book more than $680 billion in cumulative depreciation charges over the next four years. Michael Burry has called the practice of extending useful life assumptions to flatten this impact “one of the more common frauds of the modern era.”

Whether you agree with that characterization or not, the data is clear: depreciation is the fastest-growing expense line at every major hyperscaler, and it’s hiding in plain sight.

Tools like Daloopa Scout — accessible directly through Claude’s MCP integration — make it possible to cut through the accounting complexity and surface these trends in minutes rather than days. For fundamental analysts and investors, that visibility isn’t optional anymore. It’s essential.