What the Number Contains
On its earnings calls during fiscal 2025, Microsoft's chief financial officer, Amy Hood, gave analysts a useful piece of anatomy. She described roughly half of the company's cloud and artificial intelligence capital spending as going to long-lived assets, such as land and buildings, expected to support the business for fifteen years and beyond, with much of the rest going to servers and chips. That single sentence explains more about capex than most headlines, because it shows that one figure blends assets with very different lives.
Begin with the difference between a building and a server. A data center shell, with its electrical rooms and cooling plant, may be depreciated over decades. The servers inside it, and especially the accelerator chips, lose economic value much faster as newer generations arrive. Companies choose and disclose these useful lives, and they change them. In its results for the fourth quarter of 2024, Amazon said it would shorten the useful life of a subset of its servers and networking equipment from six years to five, citing the faster pace of technology in artificial intelligence. Meta moved in the other direction in early 2025, lengthening the estimated life of certain servers and network assets. The same dollar of capex therefore shows up differently in profit depending on the assumption attached to it.
Now the finance lease, which is the reason the headline figures in the last lesson did not match the cash flow line. Under the lease accounting standard used in the United States, known as Accounting Standards Codification topic 842, or ASC 842, a lease is classified as either a finance lease or an operating lease. A finance lease looks economically like buying the asset with borrowed money: the company controls the asset for most of its life, or will own it at the end. It is recorded on the balance sheet as an asset and a matching liability, and the company pays it down over time, much as it would repay a loan.
Because the company gets the asset without paying cash up front, a finance lease does not appear in purchases of property and equipment when the asset arrives. The cash shows up later, in the financing section of the cash flow statement, as principal payments on the lease. Companies that rely heavily on finance leases for data centers and equipment would understate their spending if they reported only the cash line. That is why Meta adds principal payments on finance leases to its headline figure, and why Microsoft reports capital expenditures including finance leases. Each company is trying to show the full scale of what it is acquiring.
Amazon approaches the same issue from the other side. Its earnings releases report several versions of free cash flow, including one that subtracts principal repayments of finance leases and financing obligations. The message is the same: some of the infrastructure the company uses was acquired without an immediate cash payment, and a careful reader should count it.
Operating leases are different again. An operating lease, such as a conventional ten- or fifteen-year lease of a data center from a developer, is also recorded on the balance sheet, but its cost runs through operating expenses rather than capex. A company that leases a building from a developer and fills it with its own servers will report the servers as capex and the building as a lease. The same campus, built by the company itself, would put both into capex. Two companies with identical capacity can therefore report very different capital spending, purely because of how they chose to acquire their buildings.
There is one more place to look. The lease footnote in each annual report typically discloses leases the company has signed that have not yet commenced, meaning the building or equipment has not been handed over. Microsoft's 10-K, for example, has included a sentence describing additional operating and finance leases, primarily for data centers, that had not yet commenced as of its fiscal year end, with their total value and expected start dates. That sentence is one of the best forward indicators in the whole filing, because it records commitments that will turn into capacity but have not yet turned into spending.
Put these pieces together and the capex figure stops looking like a single fact. It is a blend of long-lived buildings and short-lived chips, of assets bought for cash and assets acquired under finance leases, and it excludes buildings that are leased on operating terms. Faraday's read is that the most informative comparison is not capex against capex but capex, finance leases and signed-but-not-commenced leases taken together, read from the same period and the same filing.
None of this makes the headline number useless. It makes it a starting point, and it makes the qualifying phrase attached to it the most important words in the sentence.