Microsoft’s mammoth AI bet will lead to over $100 billion in data center leases
Microsoft CEO Satya Nadella speaks at a company event on artificial intelligence technologies in Jakarta, Indonesia, on April 30, 2024. Microsoft will invest $1.7 billion to build out cloud computing and artificial intelligence infrastructure in Indonesia, betting on Southeast Asia’s biggest economy to spur growth.
Dimas Ardian | Bloomberg | Getty Images
As Microsoft investors get ready for quarterly earnings this month, there’s one particular metric that’s become increasingly important: finance leases.
A finance lease lets a company pay for an asset over years, rather than all upfront. For companies like Microsoft that are building massive data centers to handle artificial intelligence workloads, shareholders have to get used to some big numbers.
In July, Microsoft told investors in a footnote of its annual report that finance leases that had not yet begun had soared to $108.4 billion, up $20.6 billion from the quarter before, and nearly $100 billion higher than two years earlier. Leases will commence between the 2025 and 2030 fiscal years, and will run for up to 20 years, the filing said.
Overall, Microsoft made $19 billion in capital expenditures in the latest quarter. The total, which includes assets acquired under finance leases, was up from $14 billion in the March quarter and was as much as Microsoft shelled out in the entire 2020 fiscal year.
“It’s an insane ramp,” said Charles Fitzgerald, a former Microsoft manager who writes about capital expenditures on his blog Platformonomics.
Investors will get further clarity on Microsoft’s lease finances when the company reports fiscal first-quarter results in late October. Executives at Microsoft and other top tech companies have approved higher capital expenditures in the past two years, often to boost their performance in generative AI.
Last month Microsoft confirmed its participation in a fund to back the development of data centers and the necessary energy infrastructure, mainly in the U.S. It also signed a 20-year power purchase agreement to restart a reactor at the Three Mile Island nuclear plant in Pennsylvania.
Caught off guard
Microsoft’s higher costs in the June quarter weren’t a surprise to those who heeded finance chief Amy Hood’s guidance from April. She said for the third time in a year that Microsoft was expecting capital expenditures to grow “materially.”
Still, RBC Capital Markets’ Rishi Jaluria was caught off guard by the finance lease figure.
“I’m always on the side that capital leases and capital expenditures are going to be way higher than people think, but they exceeded my own expectations,” Jaluria said. “Frankly, I’m trusting Microsoft here.” A capital lease is another term for a finance lease.
Microsoft has said it achieves the best performance and the best cost when it’s building data centers from scratch. But sometimes the company needs additional capacity immediately, and finance leases can help Microsoft obtain it more quickly.
The pace has been frenetic since OpenAI introduced ChatGPT in late 2022. Microsoft supplies computing power to OpenAI, meaning the startup needs enough servers packed with Nvidia graphics processing units to keep ChatGPT online.
With ChatGPT and other OpenAI services becoming even more popular, Microsoft has signed up additional cloud providers, including CoreWeave and Oracle. UBS analysts wrote in a report in September that comments Hood made in January suggest that Microsoft’s finance leases include the relationships with CoreWeave and Oracle.
Microsoft declined to comment on where third-party cloud partnerships show up on its financial statements.
Jaluria said investors don’t pay attention to backlogs for capital leases. Microsoft doesn’t specify when they will kick in or how long they will last, making them less immediate than in-quarter capital expenditures.
CEO Satya Nadella normally defers to Hood when analysts ask financial questions on earnings calls. But in July, Nadella stepped up when an analyst asked about the strategy of forming partnerships with other cloud providers that supplement Microsoft’s direct data center spending.
“To me it’s no different than leases that we’ve already done in the past,” Nadella said. “You could even say sometimes buying from Oracle may be even more efficient leases because they are even shorter date.”
When it comes to the jump in capital expenditures and future finance leases, Jaluria said investors just have to accept that they will weigh on profitability.
“Naturally, margins are coming down,” said Jaluria, who has the equivalent of a buy rating on the stock. “The cost is here now, and the benefits are not here to offset it. And I think that’s OK.”
VCG | Visual China Group | Getty Images
Google on Wednesday said it will sign the European Union’s guidelines on artificial intelligence, which Meta previously rebuffed due to concerns they could stifle innovation.
In a blog post, Google said it planned to sign the code in the hope that it would promote European citizens’ access to advanced new AI tools, as they become available.
Google’s endorsement comes after Meta recently said it would refuse to sign the code over concerns that it could constrain European AI innovation.
“Prompt and widespread deployment is important,” Kent Walker, president of global affairs of Google, said in the post, adding that embracing AI could boost Europe’s economy by 1.4 trillion euros ($1.62 trillion) annually by 2034.
The European Commission, which is the executive body of the EU, published a final iteration of its code of practice for general-purpose AI models, leaving it up to companies to decide if they want to sign.
The guidelines lay out how to meet the requirements of the EU AI Act, a landmark law overseeing the technology, when it comes to transparency, safety, and security.
However, Google also flagged fears over the potential for the guidelines to slow technological advances around AI.
“We remain concerned that the AI Act and Code risk slowing Europe’s development and deployment of AI,” Kent Walker, president of global affairs of Google, said in the post Wednesday.
“In particular, departures from EU copyright law, steps that slow approvals, or requirements that expose trade secrets could chill European model development and deployment, harming Europe’s competitiveness.”
Earlier this month, Meta declined to sign the EU AI code of practice, calling it an overreach that would “stunt” the industry.
“Europe is heading down the wrong path on AI,” Joel Kaplan, Meta’s global affairs chief, wrote in a LinkedIn post at the time. “This code introduces a number of legal uncertainties for model developers, as well as measures which go far beyond the scope of the AI Act.”
Technology
South Korea’s LG Energy Solution signs $4.3 billion battery supply deal with undisclosed party
Technology
CyberArk’s stock jumps on report Palo Alto Networks in talks to buy company for over $20 billion
Nikesh Arora, CEO of Palo Alto Networks, looks on during the closing bell at the Nasdaq Market in New York City, U.S., March 25, 2025.
Jeenah Moon | Reuters
CyberArk shares soared as much as 18% on Tuesday after The Wall Street Journal reported that cybersecurity provider Palo Alto Networks has held discussions to buy the identity management software maker for over $20 billion.
Cloud security is becoming an increasingly critical piece of the enterprise tech stack, especially as rapid advancements in artificial intelligence bring with them a whole new set of threats, and as ransomware attacks become more commonplace.
Founded in 2005, Palo Alto Networks has emerged in recent years as a consolidator in the cybersecurity industry and has grown into the biggest player in the space by market cap, with a valuation of over $130 billion. CEO Nikesh Arora, who was appointed to the job in 2018, has been on a spending spree, snapping up Protect AI in a deal that closed in July, and in 2023 buying Talon Cyber Security, Dig Security and Zycada Networks.
But CyberArk would represent by far Arora’s biggest bet yet. The Israeli company, which went public in 2014, provides technology that helps companies streamline the process of logging on to applications for employees.
CyberArk faces competition from Microsoft, Okta and IBM‘s HashiCorp. Another rival, SailPoint, returned to the public markets in February.
With Tuesday’s rally, CyberArk shares climbed to a record, surpassing their prior all-time high reached in February. The stock is up 29% this year, pushing the company’s market cap to almost $21 billion, after jumping 52% in 2024. Palo Alto shares, meanwhile, slid 3.5% on the report and are now up about 9% for the year.
Representatives from Palo Alto Networks and CyberArk declined to comment.
During the first quarter, CyberArk generated around $11.5 million in net income on around $318 million in revenue, which was up 43% from a year earlier.
It’s been an active stretch for big deals in the cyber market. Google said in March that it was spending $32 billion on Wiz, its largest acquisition on record by far, and a purchase intended to bolster its cloud business with greater AI security technology.
Networking giant Cisco also made its biggest deal ever in the security space, buying Splunk in 2023 for $28 billion. Splunk’s technology helps businesses monitor and analyze their data to minimize the risk of hacks and resolve technical issues faster.
— CNBC’s Ari Levy contributed to this report
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Sports2 years agoButton battles heat exhaustion in NASCAR debut
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike