> Compared to $40 of today, profit dropped by $40, meaning earnings contraction is around the corner...? Unless of course Microsoft manages to actually earn $20 or more from each GPU each year

Correct. If Microsoft fails to earn more profit from a capital asset, over said asset's useful life, than was paid for it, Microsoft's earnings would be reduced. Put simply, it would have made a bad investment. Presumably, that would affect whether Nvidia gets another order.

If you've ever wondered why subscription mania took hold over the last decade, you've backed into the answer.

(Note that Microsoft depreciates "servers and network equipment" on a straight-line basis over "two to six years" [1].)

[1] https://www.sec.gov/Archives/edgar/data/789019/0001193125263... page 61

>Ok great, thanks for clarification. But still, on year 3 of the AI buildout, assuming the pace doesn't accelerate (it's already pretty fast!) then each GPU bought logs $0 profit since it's offset by amortization of the last two years.

Probably worth noting that Azure has had GPU resources for a while, I think it was already a profitable line for them, and since people have been chasing GPU compute on cloud platforms it can be difficult in some regions getting a reservation. Microsoft is probably looking at AI as Another profitable use case for our assets, let's expand it rather than a greenfields GPU buildout from zero. And where capacity doesn't get used by AI their customers can use it for other stuff across most not all SKUs