Trump-backed 'big beautiful bill' unleashes billions for Big Tech. How four of our megacaps benefit

CNBC

7 days ago

The "big beautiful bill" — championed by President Donald Trump and signed on Independence Day — is shaping up to be a windfall for Big Tech. The measure — officially called the "One Big Beautiful Bill Act," or OBBBA for short — restores three tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) from Trump's first administration. They are set to boost free cash flow (FCF) for megacap tech firms that are pouring billions and billions of dollars into building artificial intelligence data centers and specialized AI infrastructure. The OBBBA brings back (1) expensing for domestic research and development, (2) 100% bonus depreciation for qualified capital expenditures, and (3) a more flexible interest deductibility limit. These provisions don't lower statutory tax rates. But, as Morgan Stanley noted, they will accelerate deductions, which could potentially drive "effective cash tax rates back toward historical lows." That, according to the analysts, could "unlock billions of free cash flow" this year for companies, including Club names Amazon , Apple , Meta Platforms , and Microsoft , which all report earnings this week. While the OBBBA provisions are valuable for the entire business community, large tech firms, in particular, benefit, according to Morgan Stanley, due to "massive R & D (research and development) and infrastructure investment in areas like AI, compute, data centers, and cloud platforms." The analysts at Morgan Stanley estimated that tech companies' FCF — or cash a company generates from its operations after accounting for necessary investments to maintain or expand the business — "could inflect this quarter," as companies adjust to the new legislation. That extra liquidity will give them "more flexibility to continue to deepen their competitive advantage in Generative AI and deliver more free cash flow to investors," they wrote in a recent note to clients. A key feature of OBBBA's provisions is that they're permanent, which establishes greater policy certainty, according to Travis Riley, a principal tax firm Baker Tilly. "That makes it great for planning," he stressed, providing a more stable environment for where mega-caps' AI-driven capital investments can be allocated. This stability drastically differs from the temporary provisions under the previous TCJA that were set to eventually expire. "Everyone in the tax community knew this was horrible tax policy and that it was going away, but no one was sure about the timing and mechanics of it," explained Riley, who leads Baker Tilly's research and development tax credit services. Before the enactment of the OBBBA, the law required businesses to capitalize and take domestic R & D costs over five years instead of fully deducting those expenses in the year they were incurred. "Before this bill, we were probably the only first-world country that penalized companies to do research and development, which is interesting in the sense that the U.S. is one of the leading innovators," said Kunaal Patel, principal of tax services at Baker Tilly. Companies can now take that full R & D expense on those deductions, meaning, their overall cash liability "should decrease dramatically in 2025 and going forward," he added. Under TCJA's rules on bonus depreciation, companies were temporarily permitted to deduct 100% of qualifying capital expenditures upfront. But, that went down by 20% each year starting in 2023, resulting in a 40% depreciation level in 2025. As Morgan Stanley puts it, these OBBBA changes allow businesses to "now reliably factor full bonus depreciation into long-term capital planning and investment decisions." These two provisions together – R & D and bonus depreciation – "significantly lower current cash tax obligations by accelerating the timing of cash deductions," analysts wrote. TCJA also placed new limits on how much interest businesses could deduct. Initially, businesses could deduct interest expenses up to 30% on EBITDA (earnings before interest, taxes, depreciation, and amortization. Beginning in 2022, that limit tightened to 30% of EBIT, excluding depreciation and amortization. The OBBBA went back to 30% on EBITDA. According to the Tax Foundation , a Washington think tank, this change provides "tax relief for firms dealing with debt-financed investment in a higher interest rate environment." To be sure, while the OBBBA should boost FCF, investors should continue to prioritize the companies' fundamental drivers of cash flow generation, especially since the timing of these tax changes won't impact their generally accepted accounting principles (GAAP) earnings-per-share. In other words, these tech firms aren't fundamentally different companies just because they're getting billions in bonus free cash flow from these new tax treatments. Rather, it's a "timing benefit from the pull forward of future cash tax savings rather than a structural change in free cash flow generation," according to Morgan Stanley. This means these companies will recognize more cash flows upfront and less later. "The new bill should promote a lot of domestic investment by big tech and provide a positive trickle-down effect to the rest of the economy," Jeff Marks, director of portfolio analysis for the Investing Club. "Although, some of the boost to free cash flow is accounting-based, it should support the multibillion-dollar share repurchase programs of these large companies." Here's a look at how much and in what ways Amazon, Apple, Meta, and Microsoft (in alphabetical order) stand to benefit from the three major tax provisions of the OBBBA. AMZN YTD mountain Amazon YTD Amazon stands to be the "largest beneficiary" thanks to its massive capital spending on data centers, logistics infrastructure, and research and development, particularly in cloud computing. A Morgan Stanley analysis estimates that Amazon will see a $15 billion lift to free cash flow by 2026, with the benefit still reaching $11 billion in 2028. While some of this may be returned to shareholders, analysts say the real impact is in Amazon's ability to double down on next-generation investments. That includes everything from same-day delivery and robotics in its retail business, to chip development and infrastructure expansion in its Amazon Web Services (AWS) cloud unit. The OBBBA would also give Amazon room to scale its partnership with AI firms like Anthropic. "This is more likely to give Amazon the flexibility to continue investing in its moats, especially in areas like generative AI, logistics and grocery," analysts said. AAPL YTD mountain Apple YTD Apple is expected to get a $20 billion boost to FCF over the next four years, according to Morgan Stanley. That's equal to an average annual free cash flow tailwind of 4% — with the biggest benefit of about $12 billion coming in 2026, the analysts noted. While meaningful, this extra cash isn't likely to change Apple's steady capital return strategy, which includes roughly $25 billion in quarterly stock buybacks and modest dividend increases. Still, Morgan Stanley sees room for Apple to invest "on the margin," particularly in areas like AI infrastructure, iPhone manufacturing shifts, and new technology like health or robotics. The analysts said the bill gives Apple "more cash optionality," but expects most of its plans to stay the same. META YTD mountain Meta Platforms YTD Meta, too, would see a significant lift from the bill, with Morgan Stanley estimating an $8 billion to $10 billion increase in free cash flow through 2028. That's a 22% boost to the company's expected 2026 free cash flow — a strong figure for a company spending heavily in AI infrastructure. Analysts believe Meta is more likely to reinvest a good chunk of that tax benefit into its infrastructure buildout to support massive AI computing clusters. MSFT YTD mountain Microsoft YTD The OBBBA could boost Microsoft's free cash flow by $10 billion over the next year — a 12% jump from previous forecasts, according to Morgan Stanley. However, the analysts don't expect this to change Microsoft's game plan. With more than $80 billion already on its balance sheet and another $130 billion to $150 billion in annual operating cash flow expected, the company "is not cash constrained," they said. This suggests any extra funds might be used for opportunistic acquisitions under the current administration. (Jim Cramer's Charitable Trust is long AMZN, META, MSFT, AAPL. See here for a full list of the stocks.) 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