sigma capitalist@phithetasigma
On $MSFT Microsoft
Took me some time to understand the accounting “tricks” in their latest Q2 - they extended the estimated useful life of their data centers & office buildings from 15 years to 25 years
Under US accounting rules, when an asset’s deemed useful life becomes longer, the math on PV of lease payments (as % of the asset fair MV) and terms (as % of the asset’s economic life) changes
Accordingly, leases for certain assets need to be reclassified, from finance leases (included in capex) to operating leases (not included in capex)
Actual commitments remain unchanged but the adjustment cuts their headline capex from ~$190b to ~$175b (for CY26)
This change also affects timing of future depreciation (spread over a longer useful life)
MSFT also mentioned that capex is skewed towards short-lived assets, CPUs and GPUs, which now represent roughly two-thirds of total. There was an earlier debate on the useful lives of AI silicon, particularly GPUs, since legacy chips continue to be economically productive beyond what most thought was a 1 – 3 years’ horizon. Consensus seems to be leaning towards up to 6 years
To size up what capex could be for fiscal year 2027, I assume the table of contractual obligations (below) to somewhat be of a reasonable guide – construction & purchase commitments and leases, but it’s also worth noting an interesting point made in a footnote:
“As of June 30, 2026, we had additional leases, primarily for datacenters, that had not yet commenced of $329.1 billion, with some arrangements subject to certain contractual conditions being met. These leases will commence between fiscal year 2027 and fiscal year 2033 with lease terms of 1 year to 20 years.”
In short, MSFT’s actual investment/commitments are not only larger than the reported capex number (for CY26) but may even be accelerating/higher in the coming years
