As Microsoft prepares for its quarterly earnings report this month, a key focus for investors has become finance leases, which have gained significance as the company invests heavily in data centers for artificial intelligence workloads. In July, Microsoft disclosed that undelivered finance leases had surged to $108. 4 billion—up $20. 6 billion from the previous quarter and nearly $100 billion from two years ago. These leases, which will start between the 2025 and 2030 fiscal years, can last up to 20 years. In the latest quarter, Microsoft reported $19 billion in capital expenditures, an increase from $14 billion in the previous quarter, and matching the entire capital spending from the 2020 fiscal year. Charles Fitzgerald, a former Microsoft manager, described this growth as "an insane ramp. " Investors will gain more insights into Microsoft's lease finances in late October. The tech giant, along with others, has increased capital expenditures significantly over the past two years to enhance generative AI capabilities.

Recently, Microsoft joined a fund supporting data center and energy infrastructure development in the U. S. and signed a 20-year power agreement for the Three Mile Island nuclear plant. Despite expectations of higher capital expenditures, RBC Capital Markets analyst Rishi Jaluria was surprised by the finance lease totals, indicating that Microsoft’s figures exceeded his expectations. Microsoft emphasizes building data centers from scratch for optimal performance but also uses finance leases to quickly obtain additional capacity, especially following the rapid growth of AI services after the launch of ChatGPT in late 2022. As a provider of computing power to OpenAI, Microsoft has forged partnerships with other cloud providers like CoreWeave and Oracle. Analysts noted that Microsoft's finance leases likely include these partnerships, although Microsoft has not specified their impact in financial reports. Jaluria mentioned that investors often overlook capital lease backlogs due to their less immediate nature compared to in-quarter expenditures. On an earnings call, CEO Satya Nadella likened partnerships with cloud providers to previous leases, suggesting they might even be more efficient. Looking ahead, Jaluria acknowledged that while increased capital expenditures and future leases might strain profitability, investors should accept this trade-off, with margins expected to decrease while costs rise.