Try this on for size:

This year, the 5 biggest tech companies will spend roughly $760 billion building AI data centers. Their combined net income will rise about 25%, to roughly $506 billion. And their combined free cash flow will fall 91%, to about $16 billion.

Half a trillion in reported profit. But only a mere $16 billion in cash actually flowing.

This is why I hate looking only at earnings.

Unfortunately, Wall Street looks at the net income number and raises its stock price targets. You should look at the 3rd number and ask where the money went.

Never mind, I'll just tell you. It went out the door to buy chips, land, power, and concrete. But it hasn't hit the income statement yet. Under the accounting rules, it doesn't have to. Not this year. Not most of next year, either.

This is Corporate America’s version of the layaway. But we’ll call it what it is: Buy Now, Expense Later.

How the Trick Works

There's no fraud here, nor any bad behavior, to be fair. And that's what makes it dangerous.

When Microsoft buys a billion dollars' worth of Nvidia chips, Nvidia books a billion dollars in revenue that day. Every penny drops into this quarter's earnings. The Street claps like seals.

Microsoft, though, doesn't record a billion-dollar expense. It records an asset. That’s called capitalizing expenses. The cost gets spread over the useful life of the equipment, 5 or 6 years, a sliver at a time. That sliver is called depreciation. Again, there’s nothing inherently wrong with this. It’s how accrual accounting works.

The problem is that one transaction creates instantly recognized revenue on one side and a small, immediate depreciation expense on the other.

As a result, both companies look healthier. The same dollar is counted as strength twice, at two different addresses and on two different timelines.

If you run that trade at $760 billion a year, you get a market where everyone's earnings are up, and nobody's paid the bill.

The analysts at Zion Research put a number on the gap: $549 billion of this year's spending is deferred to future income statements. Morgan Stanley calls this stretch "a golden window where everybody looks good."

A golden window. What a lovely phrase! Here's my version: the bar tab is open, the drinks are flowing, and the bartender is licking his chops getting everyone drunk.

We've Seen This Movie Before

If this smells familiar, it should. It's the telecom playbook from 1999.

Back then, Lucent and Nortel booked booming revenue selling gear to carriers. Some of that gear was bought with money Lucent itself lent the buyers. They called it vendor financing. Revenue today, risk tomorrow. When the carriers stopped building, the revenue vanished, the loans went bad, and both companies were destroyed.

Today's version is politer. The chipmaker invests billions in the AI labs. Next, the labs commit billions to the cloud providers. Finally, the cloud providers buy the chips. Round and round the money goes, and at every stop, someone books revenue.

This is a classic cluster of errors: thousands of firms making the same bet, at the same time, because the signal told them to. This is the accounting layer of that story. This time, the signal isn't only cheap money. Now we add an income statement that hides the cost of the bet for years.

And forward earnings estimates have the same flaw as GDP. While GDP measures spending and not wealth, earnings measure booked income, not cash. A number can go up while the thing it measures rots.

The Tell

Of course, Wall Street knows all this. But the music hasn’t stopped yet, so they keep dancing.

Analysts normally trim their full-year estimates as the year rolls on. Over the past five years, the average cut by midsummer was about 2%. This year, they went the other way. The 2026 earnings growth estimate climbed from about 14% in February to north of 23% by July.

Estimates rising into the ninth inning of a capex boom? That smacks of The Street’s analysts smoking the hopium.

Alphabet gave us a live demo last quarter. Headline earnings up 294%. But if you strip out a $99 billion paper gain on its stakes in two private AI companies, the core business missed estimates by 3 cents. The market kept the headline and threw away the footnote. And the most important things to read in a company’s financial statements are the footnotes.

Marking up your own private AI investments and calling it profit, while your free cash flow evaporates, is quite a trick. But it’s legal, disclosed, and audited, I hasten to add. It’s also meaningless as a measure of what the machine actually earns.

The Next Phase

You can’t ignore depreciation expense and hope it goes away. Every dollar of that $549 billion gap will show up on future income statements, right on schedule. And capex keeps growing, so next year's deferred bill will be larger than this year's.

That leaves us with two possibilities.

Behind exit door number one: AI revenue will grow fast enough to swallow the depreciation expense whole. Margins will then hold. The window stays golden. It's what every rising estimate assumes. It’s possible.

Behind door number two: revenue will disappoint, the capex will slow, and the ugly symmetry will kick in. The chipmakers’ revenue gets hit. The cloud giants will keep the depreciation expense rolling for years. Earnings will be hit at both companies in the same quarter. Finally, the Street will wake up and realize its estimates were built on a layaway plan.

You don't have to predict which exit. You just have to notice that only one of them is priced in.

Wrap Up

If you've been reading the Rude, I know none of this shocks you. You knew spending inflates GDP and booms cluster errors. You almost certainly suspected the earnings "miracle" had a catch. The catch now has a dollar figure: $549 billion, payable in installments.

So keep doing what smart money does. Own things that don't need a golden window to look good, like real assets. Or businesses that generate cash, not just earnings. Remember, gold doesn't file a 10-K.

And when the bartender finally asks for the credit card, you won’t be the one holding mere paper profits.

Buy now, expense later always ends the same way. Somebody pays.

Make sure it isn't you.