Investors would want to keenly observe several such significant finance leases of the company when it’s reporting its third-quarter earnings later this month. For example, the company has several finance leases, whereby acquisition costs can be spread over years-acutely relevant considering that Microsoft is significantly expanding its data centers for large AI workloads.
The company disclosed in its annual report that the total value of finance leases not yet initiated grew to $108.4 billion and represented more than a doubling over two quarters as well as almost $100 billion more than it was at the same time two years ago. The start date is between the 2025 and 2030 fiscal years. The leases range from six to 20 years.
In the last quarter, capital expenditures at Microsoft totaled $19 billion. This is up from $14 billion in the previous quarter; a total that sums up the fiscal year 2020 full year amount.
Further information on Microsoft’s lease financials can be expected when the company reports fiscal first-quarter results toward the end of October. Spending growth has been led by increases in capital expenditures as the company invested even more heavily in its generative AI capabilities.
The software giant recently declared plans to invest in a development of data centers and energy infrastructure, most of which is located in the U.S. It further sealed a 20-year power purchase agreement to restart a reactor at the Three Mile Island nuclear plant in Pennsylvania.
RBC Capital Markets analyst Rishi Jaluria concedes that he was expecting “higher capital expenditures,” but the magnitude of the finance lease backlog shocked him. He says, “Investors tend to ignore the capital lease backlog because they do not have any specific start and end dates for such a lease, and they will add up to less visible in-quarter spending.”.
It has also recognized the alliances with other cloud providers, CoreWeave and Oracle, completing Microsoft’s data center investment. Although the price goes up with such an expansion, Jaluria noted the immediate profit impact effects as the benefits of these investments come along in time.
