AI data centre race builds US$1 trillion lease burden for Big Tech

Microsoft, Meta Platforms, Oracle, Amazon and Alphabet have ⁠committed about US$1.09 ⁠trillion ($1.55 trillion) in future payments under leases that have not yet begun, mostly for data centres needed to power the artificial intelligence boom.

The commitments show that a substantial part of Big Tech's AI spending spree has already been locked in, ‌without yet appearing as debt-like lease liabilities on company balance ‌sheets.

If ‌demand for AI computing continues to surge, the facilities will ‌underpin the next phase of cloud growth.

If it does ⁠not, the companies could be left paying for vast amounts of costly, long-lived capacity that is difficult to shed.

The total is nearly four times the roughly US$285 billion of lease liabilities already recognised on the companies' balance sheets, according to company ​filings compiled by Reuters.

The gap reflects accounting treatment. Signed leases generally are not recorded as liabilities until a facility is available for use. Until ⁠then, companies disclose the future payments in notes to their financial statements.

The commitments are not hidden, and rating agencies may already account for some of them. But their scale reveals how much of the AI buildout has yet to enter reported lease liabilities, fixed charges and reported leverage measures.

The US$1.09 trillion cannot simply be added to debt. Uncommenced lease commitments are generally undiscounted payments spread over many years, whereas recognised lease liabilities reflect their present value.

Oracle has the largest apparent concentration risk. It disclosed US$260 billion ​of uncommenced commitments, nearly seven times its US$37.89 billion ⁠of recognised lease liabilities.

The commitments are substantially for data ⁠centres, expected to begin between fiscal 2027 and fiscal 2029, and generally run for 15 to 19 years.

Oracle has ​warned that the duration, renewal terms and pricing of its data-centre leases may not ‌align with customer contracts, ⁠leaving it exposed if customers do not renew or cannot perform.

Its borrowings equalled about 4.4 times trailing EBITDA at the end of May, according to a Reuters analysis of LSEG data and company filings. ‌

Including recognised operating and finance lease liabilities lifted that ratio to about 5.7 times.

S&P Global Ratings said it incorporated Oracle's US$260 billion of uncommenced leases into its adjusted-debt forecast and expected leverage to be around 4.4 in fiscal 2027.

Microsoft had the largest disclosed ​pipeline, at US$329.1 billion, against US$88.52 billion of recognised lease liabilities.

Meta disclosed US$278.99 billion of uncommenced operating and finance lease payments, then signed a further US$68 billion of data-centre leases in July, lifting the five companies' known pipeline to ‌about US$1.16 trillion, including ⁠those later agreements.

Alphabet reported US$85.2 billion of ​uncommenced leases, while Amazon disclosed US$137.21 billion.

Amazon's figure is less directly comparable because its lease portfolio also includes warehouses, offices, ​aircraft and vehicles.