Moody’s Warns of $662 Billion Risk in Data Center Expansion by 5 Firms
The technology sector is witnessing a dramatic transformation driven by the race to build artificial intelligence (AI) infrastructure. A recent report by Moody’s Ratings has uncovered a staggering $662 billion in unrecognized future lease commitments related to data centers among the top five U.S. hyperscalers, which include Amazon, Meta, Alphabet, Microsoft, and Oracle.
Unprecedented Financial Commitments
As of late 2025, these five tech giants are on track to report a total of $969 billion in undiscounted future lease commitments. Notably, more than two-thirds of these commitments, amounting to $662 billion, pertain to leases that have not yet commenced. Because these amounts are classified as off-balance-sheet obligations, they do not currently appear in these companies’ financial statements as liabilities.
Implications of Future Lease Obligations
Moody’s analysts, David Gonzales and Alastair Drake, emphasized the significance of this hidden financial liability. The unrecorded $662 billion represents 113% of these companies’ adjusted debt. Gonzales clarified that these companies have not avoided liabilities but have not yet received the services that would trigger these obligations.
For instance, Alphabet disclosed plans for future lease payments of $42.6 billion related to data centers, which will commence between 2025 and 2031. This figure was up from $23.9 billion just a quarter earlier. Such scaling lease commitments underline the evolving landscape of the tech industry.
Accounting Nuances and Structural Changes
The current accounting guidelines under Generally Accepted Accounting Principles (GAAP) allow for these significant commitments to remain off the balance sheets. Historically, U.S. data center leases lasted 10 to 15 years, but advanced AI hardware necessitates shorter lease terms. This shift leads hyperscalers to favor initial leases with renewal options.
- Initial lease terms often span just four to six years, reflecting the rapid evolution of technology.
- Lease renewal periods are only categorized as liabilities if they are deemed “reasonably certain,” a threshold requiring over 70% certainty.
Due to the unpredictable nature of future AI technologies, tech companies can argue against such certainties, keeping potential renewal expenses off their records. However, to secure financial backing from landlords for these massive infrastructure projects, hyperscalers often offer residual value guarantees (RVGs). These guarantees protect landlords if future market values fall below anticipated levels.
Market Perspectives and Future Outlook
Moody’s cautioned that these complex accounting practices might obscure the actual economic risks the technology sector faces. While leasing may lower initial capital expenditures, the considerable future obligations could limit operational flexibility, particularly in a swiftly changing industry landscape.
In summary, the tech industry’s burgeoning commitments to data centers exemplify a significant shift in financial strategies and risk assessment. As the lease dates approach, companies may face increasing pressure to disclose these liabilities accurately, paving the way for a reevaluation of how tech firms manage their financial exposure.
