Morgan Stanley touts a $70 billion boost for megacap tech companies from the One Big Beautiful Bill Act
Tax tweaks are poised to give a huge lift to five of the Magnificent 7’s free cash flows — and they just might send that extra money to another member of the cohort!
Morgan Stanley has dotted its I’s and crossed its T’s to figure out just how much of a near-term boost the budget reconciliation bill dubbed the “One Big Beautiful Bill Act” will give to the cash flows of megacap tech companies.
TL;DR: a more than $70 billion improvement to this year’s free cash flow (that is, operating cash flow less capex) for Amazon, Alphabet, Meta, Microsoft, and Apple. If Morgan Stanley’s estimates are in the ballpark, this would be the equivalent of adding more free cash flow than Meta generated in 2024 as a whole ($54 billion).
What’s fueling this?
100% bonus depreciation on qualified property in its first year in service is restored;
Domestic R&D expenses are fully deductible the year they occur, along with allowing retroactive deductions for domestic R&D costs from 2022-24 that were deferred; and
Shifts to how foreign-derived earnings are taxed.
In a note titled “The Big Beautiful Tech Tax Bill,” Morgan Stanley’s team, led by Todd Castagno, suggests that the effects could begin showing up this quarter, while cautioning that the ultimate impact “could vary meaningfully.”
These tax tweaks are intended to spur investment. It’s unlikely that this is a major dial-mover on the hundreds of billions that tech companies are dead set on shelling out to enhance their AI footprints, but hey, it doesn’t hurt.
“Rather than altering core investment and capital return strategies, we think excess capital could be used for reinvestment in AI infrastructure and data centers or added strategic M&A flexibility,” the team wrote.
On the one hand, it’s nice to have more cash as you spend it hand over fist. On the other hand, it’s not like these companies aren’t mulling other options to access money for AI-related capex, and capital markets would likely be happy to finance any such endeavors.
