Major technology companies are investing hundreds of billions of dollars into artificial intelligence infrastructure, but the true scale of this financial commitment is larger than their capital expenditure reports suggest. Firms like Microsoft and Oracle are increasingly using an accounting tool known as finance leases to acquire essential equipment, which alters how these massive investments appear on their financial statements.
Key Takeaways
- Microsoft and Oracle are heavily using finance leases to fund their AI infrastructure expansion, masking the full immediate impact on cash flow.
- A finance lease is similar to buying an asset with debt, allowing companies to avoid large upfront cash payments.
- Microsoft's finance lease liabilities grew by 70% to $46.2 billion, while Oracle's jumped from zero to $4 billion in a single year.
- Including these leases reveals a much higher capital intensity, with Oracle's capex-to-sales ratio rising from 41% to 58% for fiscal year 2026, according to Morgan Stanley.
- Other major tech companies, including Amazon and Meta, are also increasing their reliance on leasing for data center and network equipment.
The True Cost of AI Expansion
The race to build dominant AI capabilities has triggered an unprecedented spending spree among the world's largest technology companies. While headlines often focus on capital expenditures (capex), a significant portion of the investment is being handled through a different financial mechanism: finance leases. This approach allows companies to build out data centers and acquire servers without the immediate, large-scale cash outflow that a direct purchase would require.
When a company buys an asset outright, the entire cost hits its free cash flow immediately. Free cash flow is a critical measure of a company's financial health, representing the cash left over after paying for operating expenses and capital expenditures. By using leases, companies can spread payments over time, preserving their cash reserves for other operations.
What Is a Finance Lease?
A finance lease is a type of lease where the risks and rewards of owning an asset are transferred to the company leasing it (the lessee). From an economic standpoint, it is very similar to purchasing the asset using a loan. No cash is paid upfront when the lease begins; instead, the company makes regular payments over the lease term. This method is particularly useful for long-term investments in high-cost equipment like AI servers and data center hardware.
Microsoft and Oracle Embrace Lease Financing
Among the major cloud providers, or "hyperscalers," Microsoft and Oracle have become prominent users of finance leases to fuel their AI ambitions. This strategy helps them manage the immense financial pressure of building infrastructure capable of handling advanced AI models.
Microsoft's Growing Liabilities
Microsoft's reliance on this financing method has grown substantially. For its 2025 fiscal year, the company reported total finance lease liabilities of $46.2 billion. This represents a 70% increase from the $27.1 billion reported in the previous year, highlighting an aggressive expansion strategy funded through leasing.
Oracle's Strategic Shift
Oracle's use of finance leases is even more dramatic. In its most recent August quarter, the company recorded $4 billion in finance lease liabilities. This figure is particularly noteworthy because just one year prior, its balance for this type of financing was zero. This rapid adoption is a strategic move to support its infrastructure needs, especially following its reported $300 billion partnership with OpenAI.
Oracle's financial situation makes leasing an attractive option. The company reported a negative free cash flow of $362 million in its latest quarter, meaning it spent more cash than it generated. Using finance leases allows it to continue its aggressive AI buildout without further depleting its cash reserves with large upfront purchases.
A Clearer Picture of Capital Intensity
Analyzing both traditional capex and finance leases provides a more accurate understanding of how intensely these companies are investing in AI. According to research from Morgan Stanley, including lease financing significantly changes the perception of their spending relative to their revenue.
This combined view, known as the capex-to-sales ratio, reveals the true level of investment. It also allows for a more direct comparison between companies that prefer to buy their assets and those that lease them.
"Combining traditional capex with finance leases shows that capex intensity among hyperscalers is more extreme than what investors may expect," stated Todd Castagno, a strategist at Morgan Stanley, in a recent note.
The impact of this adjustment is significant:
- Microsoft's estimated capex-to-sales ratio for fiscal year 2026 jumps from 28% to 38% when finance leases are included.
- Oracle's ratio for the same period increases from 41% to 58%, one of the highest levels in the industry.
These figures indicate that a substantial portion of these companies' revenue is being reinvested into building the physical foundation for future AI growth.
An Industry-Wide Trend
The use of leasing is not limited to Microsoft and Oracle. Other technology giants are also turning to this method as capital intensity reaches its highest levels since their initial public offerings.
Amazon, which had previously focused on owning its assets, has reversed its strategy. In its most recent July quarter, the company acquired $937 million worth of equipment through finance leases, a sharp increase from just $181 million during the same period a year earlier.
Similarly, Meta Platforms has dramatically increased its lease commitments, which are contracted leases that have not yet started. The company reported $52.6 billion in operating and financing lease commitments in its latest July quarter, primarily for data centers and networking equipment. This is a massive increase from the $6.2 billion in commitments reported just one year ago. Once these leases officially begin, the associated expenses will start appearing on the company's financial records.
This industry-wide shift toward leasing underscores the enormous and ongoing cost of the AI revolution. While it helps companies manage cash flow in the short term, it also locks them into long-term payment obligations that will shape their financial futures for years to come.
