Bernstein is pushing back hard on the narrative that hyperscalers are hiding losses behind aggressive depreciation schedules, noting that AI hardware continues generating value well beyond what critics claim.
In a new note posted on X by VanEck’s Matthew Sigel, Bernstein analysts say investors should ignore claims that AI hardware like Nvidia’s A100s loses much of its value after just three years.
Bernstein believes the useful life of cutting-edge GPUs is considerably longer.
“We observe that cash costs of operating a GPU are very low compared to market prices for GPU rental, making the contribution margins of running old GPUs for longer quite high. Even with meaningful improvements in price/performance with each GPU generation, vendors can make comfortable margins on five-year-old A100s, in turn implying a five- to six-year depreciation lifespan is reasonable.”
The firm also notes that GPU depreciation tends to plateau after the first year of devaluation.
“One nuance is that GPUs probably lose more value after the first year than a linear six-year depreciation would imply, but that they appear to retain value fairly well beyond that point. We observe that data center operators often lose a significant number of GPUs to ‘burn-in,’ as configurations based on the previous generation of GPU may not be quite right for newer hardware, and operators take time to figure out the configuration. Likewise, users often prefer to run demanding workloads like AI training on the latest generation hardware, with older machines being relegated to running less performance-sensitive workloads. This is consistent with the observation that GPUs on the resale market often lose 20-30% of their list price after the first year, but value seems to be better retained by that point.”
Bernstein analysts add that AI bears should instead look at the demand for compute for their short thesis.
“We do suspect that the economics may become less favorable if compute demand softens, potentially leading to older GPUs being switched off even if they are still functional (however, we also believe that if compute demand softens that materially, GPU depreciation accounting would be the least of investors’ concerns…)”
Last week, famed short-seller Michael Burry claimed that hyperscalers were engaging in modern-era fraud by extending GPU lifecycles and understating asset depreciation to boost their balance sheet. He predicted that hyperscalers will distort their income by $176 billion in the coming years.
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