After $628 billion in off-balance-sheet commitments were included in the valuation, is Meta's stock "35% more expensive"?

After $628 billion in off-balance-sheet commitments were included in the valuation, is Meta's stock "35% more expensive"?

Meta's approximately $628 billion in off-balance-sheet liabilities have long been hidden in the footnotes of its financial statements. When this figure is included in the calculation of enterprise value, the valuation framework of the entire mega-cap technology stock is facing reconstruction.

On October 2, Needham analyst Laura Martin released a research report pointing out that if Meta's off-balance-sheet commitments are included in enterprise value (EV), its valuation multiple will increase by 35%, making the stock far more expensive for shareholders than traditional metrics suggest .

Martin subsequently stated publicly on CNBC: "Meta's on-balance-sheet debt and leases total approximately $100 billion, while its off-balance-sheet liabilities amount to a staggering $600 billion. If you don't include this $600 billion in EV, your valuation would be 35% lower. " This assessment directly impacted the market's pricing logic for Meta.

More noteworthy is the dramatic reversal of conclusions when Needham's methodology was consistently applied to Alphabet: Google's adjusted EV/FY27E revenue multiple reached 9.0x, higher than Meta's 8.3x—meaning that after full disclosure of off-balance-sheet liabilities, Google actually became the more expensive company. Meanwhile, Meta added approximately $68 billion in data center leases in July alone, and the expansion of its off-balance-sheet obligations continues to accelerate. Whether the market has adequately priced in this implicit leverage has become a core issue that investors in mega-cap tech stocks cannot avoid.

Meta's on- and off-balance sheet liabilities are 5.6 times apart.

Needham's analytical framework is based on fundamental accounting principles. The bank believes that "equity value is the residual value attributable to shareholders after the repayment of debts and other contractual obligations." Therefore, regardless of the accounting treatment, ever-increasing obligations and commitments constitute resistance to stock price increases and should be included in EV calculations.

Specifically for Meta, as of the end of June 2026, its on-balance-sheet debt and leases totaled approximately $112 billion, while its two off-balance-sheet liabilities totaled approximately $628 billion, a ratio of 5.6 times—meaning that for every $1 of leverage disclosed on Meta's books, there is an additional $5.60 hidden in the footnotes.

The composition of these two off-balance-sheet liabilities is clearly disclosed in footnote 9 of Meta's Q2 10-Q report: First, approximately $279 billion in operating and finance lease obligations that have not yet commenced, involving data centers, hosting facilities, and some network infrastructure, with lease terms extending from 2026 to 2036, up to a maximum of 30 years; Second, approximately $349.3 billion in irrevocable contractual commitments, mainly involving third-party cloud capacity arrangements, server and network infrastructure investments, data center construction, and Reality Labs consumer hardware products, of which approximately $53.5 billion and $81.7 billion are due in 2026 and 2027, respectively. In addition, Meta has contingent cloud capacity procurement obligations of up to $14.7 billion.

After including the aforementioned off-balance-sheet liabilities in EV, Meta's EV/FY27E revenue multiple increased from 6.15x to 8.32x, an increase of 35%.

Accelerated Pace of AI Infrastructure Promises

The figures above do not reflect the latest developments. Meta disclosed in its Q2 10-Q report that it had entered into approximately $68 billion in new data center leasing obligations by July 2026—the end of the quarter.

This figure means that in just one month, Meta's new lease commitments amounted to approximately 80% of its total on-balance-sheet debt (approximately $84 billion) at the end of June, while also causing the "unfulfilled" lease obligations to expand by more than 10% before the end of the third quarter. Needham concludes that Meta's off-balance-sheet obligations showed a "rapid growth" trend in the third quarter.

According to research released by Goldman Sachs credit strategist Amanda Lynam in August, as of the second-quarter earnings season, mega-technology companies had a total of $1.5 trillion in lease commitments tracked, of which $1.0 trillion came from leases that had not yet commenced. Due to the specific treatment of leases under US GAAP accounting standards, these "uncommitted" lease commitments are not reflected in financial statements but will become actual payment obligations over the next few years. Lynam pointed out that this treatment "may underestimate leverage levels and future liquidity needs," and expects "AI-related issuers to continue to bear additional spread risk premiums."

Morgan Stanley's accounting team (Todd Castagno et al.) expanded their statistics to include Nvidia, Broadcom, and various guarantees and bailout arrangements at the end of August, arriving at a total of over $3.1 trillion in off-balance-sheet commitments. According to ZeroHedge, as of September 30, the off-balance-sheet liabilities of mega-technology companies had reached $3.8 trillion, an increase of approximately $700 billion from the end of June.

Google is actually the "more expensive" one: Consistency correction of the Needham methodology

Needham’s original research report has a noteworthy methodological flaw: its table counts “irrevocable contractual commitments” for both Amazon and Google’s parent company Alphabet as zero, but this is not the case in the financial statements of the two companies.

Alphabet disclosed $707 billion in long-term purchasing commitments in its second-quarter 10-Q report—a figure consistent with that used by Morgan Stanley; Amazon disclosed $130 billion in unconditional purchasing obligations. These commitments are of the same nature as those recorded by Needham for Meta.

When Needham's method was consistently applied to the three companies, the conclusions changed significantly:

  • Alphabet : The EV increase was widened from Needham's original 3% to 21%, and the adjusted EV/FY27E revenue multiple rose to 9.0 times, higher than Meta's 8.3 times;
  • Amazon : EV increase widened from 9% to 14%;
  • Meta : If the $68 billion in new leases in July, the guaranteed exposure of the Hyperion and El Paso data center projects (approximately $46 billion and $13 billion in maximum loss exposure, respectively), and the $14.7 billion in contingent cloud procurement obligations are further included, the actual adjustment would be approximately 42%.

In other words, Meta's off-balance-sheet leverage remains the highest among the three, confirming Needham's core assessment; however, the original "35% vs. 3%" comparison severely underestimated Google's off-balance-sheet debt. After sufficient adjustment, Google actually becomes a more valued stock in terms of EV/revenue multiple.

Has the market already priced in this implicit leverage?

Supporters argue that the procurement commitments are not debt in the traditional sense—they represent server, cloud capacity, and chip contracts that Meta expects to convert into revenue. Credit rating agencies typically treat lease liabilities as debt, but not procurement obligations. Furthermore, Meta's disclosed $628 billion in off-balance-sheet liabilities are undiscounted figures; if calculated at present value, the EV impact would be less pronounced.

However, the rebuttal is equally compelling. Morgan Stanley explicitly warns: "These contracts have strategic value during periods of supply shortage, but if supply and demand return to normal prematurely, companies may have to pay for excess capacity or try to renegotiate the terms." In other words, the premise that a purchase commitment is "not a debt" is that the company always needs what it has committed to buying.

Free cash flow is already showing signs of strain. According to Morgan Stanley, Amazon and Google's free cash flow turned negative in the second quarter, and Meta predicts it will also enter negative territory next quarter.

In the bond market, Goldman Sachs data shows that hyperscale technology companies have issued $250 billion in bonds this year, a significant jump from less than $20 billion in 2024; the forecast for 2027 is $420 billion, and this forecast does not include data center financing issued by special purpose vehicles (SPVs) – which is precisely the core component of the current off-balance-sheet structure that Morgan Stanley points out.

Needham maintains its "hold" rating on Meta, but its concerns extend beyond accounting. Laura Martin points out that Meta is simultaneously pursuing multiple fronts, including custom chips, data centers, enterprise AI, business intelligence agents, model APIs, computing power sales, and smart glasses. "Management attention, engineering talent, and shareholder capital are scattered in too many directions," and with a $628 billion commitment, the margin for error has narrowed significantly.

Meta's Q3 10-Q is expected to be released at the end of October. With the $68 billion in new leases in July already a done deal, the market already knows where the footnotes are headed.

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