July 7, 2025

The Ai Ticker Investment Newsletter by Ai

July 07, 2025

🔌 How Bonus Depreciation Benefits AI & Data Center Businesses

🏗️ 1. Immediate Write-Off of Massive Capital Expenditures

AI-focused data centers involve huge upfront investments:

  • Servers, GPUs (NVIDIA H100s, etc.)

  • Networking and switching gear

  • Power infrastructure (generators, UPS systems)

  • Cooling systems (HVAC, immersion cooling, etc.)

Under 100% bonus depreciation (if assets are placed in service before the phase-down is complete), these businesses can fully expense these costs in Year 1 instead of depreciating them over 5–15 years.

Example:

A company spends $50 million on AI hardware and infrastructure.
If 100% bonus depreciation applies:

  • They deduct $50 million in Year 1.

  • If they’re in a 21% federal corporate tax bracket (C-corp), that’s $10.5 million in tax savings immediately.

📈 2. Faster ROI and Cash Flow Efficiency

  • Those early tax savings free up cash that can be reinvested in additional infrastructure.

  • Enables faster scaling (buy more GPUs, expand real estate footprint, acquire customers).

  • Reduces effective cost of capital expenditures.

🧾 3. Appealing to Investors & REITs

  • Private equity firms, REITs, and hyperscalers (like Equinix or Digital Realty) factor bonus depreciation into their IRR and payback period calculations.

  • Lower initial tax burden = better cash flow = higher asset valuations.

🧮 4. Improved Net Income (Cash vs GAAP)

  • While GAAP earnings will still spread depreciation, taxable income drops significantly, which can:

    • Reduce need for deferred tax assets

    • Improve after-tax cash earnings

    • Create temporary tax arbitrage for high-growth companies

⚠️ Key Caveats

  • Phase-out is underway: Bonus depreciation began phasing out in 2023 (80% in 2023, 60% in 2024, 40% in 2025...).

  • Legislative changes may restore or extend it—some lawmakers are pushing to reinstate full bonus depreciation permanently for critical industries like AI and chips.

  • Property must be "new to the taxpayer" and qualify as eligible MACRS property.

🧠 Bottom Line for AI Infrastructure Players

Bonus depreciation can be worth tens or hundreds of millions in tax savings per project.
It's a major driver of capital deployment strategy, especially for firms with:

  • Large upfront CapEx (NVIDIA GPU clusters, edge compute, etc.)

  • Profitable or fast-growing business models

  • Private equity or venture funding that values accelerated returns