The Big Beautiful Bill just quietly boosted Big Tech earnings

Business Insider

09-07-2025

President Donald Trump's new tax bill hands businesses major tax perks, but it's especially generous to Big Tech — and it could deliver an earnings boost that's not yet been priced in by the market.
Specifically, the One Big Beautiful Bill Act's research and development (R&D) expensing guidelines will create a "cash flow tailwind" for software companies, Morgan Stanley said this week.
Previously, the 2017 Tax Cuts and Jobs Act required companies to spread out domestic R&D costs over the course of five years starting in 2022. But now, the new tax bill allows companies to expense those R&D costs upfront, restoring a more favorable tax treatment that lowers companies' taxable income.
And to make the deal even sweeter, the new tax bill allows for retroactive deductions of previously deferred R&D costs, allowing companies to claim tax savings from previous years all at once.
There's an additional accounting wrinkle: According to Generally Accepted Accounting Principles (GAAP), the rulebook that companies follow when reporting earnings to Wall Street, R&D expense must be expensed immediately even if the costs are being paid over the period of five years, as was the case under the previous legislation.
This discrepancy means companies actually paid more in taxes up front than their GAAP incomes would suggest, creating a deferred tax asset that allowed companies to take a tax deduction in later years.
Now, with the One Big Beautiful Bill, companies can take advantage of those deferred tax assets earlier and deduct R&D costs immediately going forward.
"The option to expense over two years, or to remain on the five-year amortization schedule, is more attractive for companies where full accelerated expensing in the first year would put them in a net loss position for tax purposes," Keith Weiss, technology equity analyst at Morgan Stanley, wrote on Tuesday.
Software companies in particular stand to be big beneficiaries of the provision in the bill, as they spend heavily on R&D to develop new products. Microsoft has spent an average of $27 billion a year on R&D over the last three years. Others, like Oracle, Salesforce, and Adobe, have spent between $3.5 to $8 billion annually. They also have significant deferred tax assets that they can leverage to boost their free cash flow next year.
According to Morgan Stanley, Microsoft could see a 4% boost to its free cash flow margin. Oracle and Salesforce are projected to benefit by around 6%. The biggest software winner on an incremental basis is Okta, which Morgan Stanley expects to receive a margin boost of nearly 12%.