AI Costs Lack Accounting Transparency

BY MARK MAURER

The massive AI build-out comes with a transparency problem.

Tech companies often provide the cost of AI data centers and chips associated with a long-term construction project. The catch: They generally don’t break out the costs for each, nor are they required to do so, despite the vastly different time periods in which facilities and chips depreciate.

That means the cost of chips that may have to be replaced in a few years or less can be lumped in with buildings that can stand for decades. This has some investors seeking more details about tech giants’ surging capital spending on AI infrastructure.

“The construction-in-prog-ress account is this big hole where hyperscalers can bury a lot of their costs,” said Gaurav Kumar, an accounting professor at the University of Arkansas at Little Rock.

Large tech companies are collectively spending hundreds of billions of dollars on data centers, chips and networking. Spending on datacenter construction is expected to exceed officebuilding construction for the first time as soon as next year.

Some data-center projects could face delays due to issues such as power-supply limitations and local politics. Concerns over postponed spending are leading investors to watch for any signals that infrastructure projects will take longer than companies project.

For companies that share their construction-in-progress spending, they rarely go any further in breaking it down. The lack of detail can be significant when the figure includes both data centers that could have a depreciable life of between 20 and 40 years and AI chips that could become obsolete in less than three years.

“The disclosure is not evolving quickly enough to keep up with real-life demand for information about AI investment,” said Olga Usvyatsky, an accounting consultant.

The debate over the longevity

of AI chips comes as many tech companies say they expect their servers and network equipment to last longer without replacing or discarding them. Replacing the equipment less frequently helps preserve cash flows. It also reduces depreciation expense and increases reported profit, sometimes by hundreds of millions of dollars. Companies include their AI spending in total figures on capital expenditures and property, plant and equipment that they are required to provide in their financial statements. They must report capital expenditures on assets not yet in service and include them in their total PPE capex, but aren’t specifically required to break these out separately. Accounting rules also generally require companies to disclose balances of major classes of depreciable assets.

The construction-in-progress account, which is immune to depreciation, holds all the costs for a fixed asset until it is ready for use. Companies then move the individual costs to building, machinery or another specific PPE category.

Google parent company Alphabet recorded $50.6 billion in assets not yet in service in 2024, up 44% from a year earlier. Amazon booked $46.4 billion in 2024, up 62% from the previous year. Meta Platforms, whose favorable treatment of a data center off the balance sheet has attracted scrutiny, said its construction in progress totaled $26.8 billion, up 10%. The account represents a chunk of net PPE for these companies, at 30%, 18% and 22%, respectively, filings show. Amazon declined to comment, and Alphabet and Meta didn’t respond to requests for comment.

Microsoft, in contrast, doesn’t give the number. It disclosed in its latest annual report that it committed $32.1 billion primarily related to the construction and improvement of data centers. In some cases, companies’ commitments may not equate to actual spending. Microsoft declined to comment. Mark Maurer writes for the WSJ Leadership Institute’s CFO Journal.

Some investors want more details about surging capital spending.