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microsoft, the leader in the ai ​​craze, will release its quarterly earnings report this month. according to media analysis, as microsoft's ai data center becomes larger and larger, the company's capital expenditure on financial leasing will receive more and more attention. the company previously said that the amount of financial leases that have not yet started has soared to more than 100 billion us dollars.

a finance lease allows a company to pay for an asset over many years rather than in a lump sum. in july,microsoft revealed in a note to its annual financial report that the amount of financial leases the company has not yet started soared to $108.4 billion, an increase of $20.6 billion from the previous quarter and an increase of nearly $100 billion from two years ago.the lease will begin in fiscal 2025 through fiscal 2030 and will last up to 20 years.

overall, microsoft spent $19 billion in capital expenditures in the latest quarter, including assets acquired through financial leases. that figure represents a $4 billion increase from the march quarter and is as much as microsoft spent in its entire fiscal 2020.

the media pointed out that when microsoft releases its fiscal first quarter results at the end of october, investors will have a better understanding of microsoft's leasing financial situation. over the past two years, executives at microsoft and other top tech companies have approved higher capital spending, often to boost performance in generative ai.

last month, microsoft confirmed its participation in a fund to support the development of data centers and necessary energy infrastructure. the company also signed a 20-year power purchase agreement with star energy, the largest nuclear reactor operator in the united states, to restart a reactor at the three mile island nuclear power plant in pennsylvania to exclusively power microsoft data centers.

analysts believe that microsoft's increase in capital expenditures in the last quarter should not be surprising. microsoft chief financial officer amy hood has stated many times in the past year that microsoft expects capital expenditures to increase "significantly."

still, rbc capital markets analyst rishi jaluria was surprised by the finance lease numbers. "i usually expect capital leases and capital expenditures to be higher than others, but microsoft's numbers still exceeded my expectations by a large margin. but frankly, i believe in microsoft."

microsoft says it gets the best performance and cost-effectiveness when it builds data centers from scratch. but sometimes companies need to add capacity immediately,finance leasecan help microsoft obtain these resources faster.

since openai launched chatgpt at the end of 2022, microsoft has been operating at a tight pace. microsoft forOpenAIproviding computing power means that the startup needs enough servers equipped with nvidia graphics cards to ensure that chatgpt is online.

as chatgpt and other openai services have grown in popularity, microsoft has signed up more cloud service providers, including coreweave and oracle. ubs analysts wrote in a september note that amy hood's comments in january suggested that microsoft's financial leases included partnerships with coreweave and oracle.

jaluria said investors typically don't focus on the backlog of capital leases. microsoft didn't specify when these leases would take effect or how long they would last, so they don't have the same immediacy as intra-quarter capital expenditures.

usually during earnings calls, when analysts ask financial questions, microsoft ceo nadella will hand the question over to hood to answer. but in july, when an analyst asked about microsoft's strategy for partnering with other cloud providers, nadella responded proactively.

"to me, it's no different than leasing that we've done in the past, and you could even argue that sometimes buying from oracle can be a more efficient lease because they're shorter terms."

regarding the surge in capital expenditure and future finance leases, jaluria said investors must accept that these expenditures will impact profitability.

“naturally, profit margins are falling, the costs are now there and the benefits are yet to come to make up for it.i see no problem with this. "