For investors, "data center construction costs" are a "financial black box."

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Tech giants have invested hundreds of billions of dollars in AI infrastructure, but insufficient financial disclosure transparency is becoming a new challenge for investors. Companies typically report the costs of data center construction and chip expenditure together, despite the substantial difference in their depreciation cycles, making it difficult for investors to accurately assess the risks of AI investment.

On Thursday, according to the Wall Street Journal, tech companies usually provide only the total costs of AI data centers and chips related to long-term construction projects, but generally do not itemize these costs separately. There is a large gap in the depreciation periods for facilities and chips—the chip costs, which may need to be replaced in a few years or even sooner, are combined with construction costs that may last for decades.

This style of disclosure has raised concerns for Gaurav Kumar, professor of accounting at the University of Arkansas at Little Rock, who said: "Construction-in-progress accounts are a big black hole where hyperscale operators can bury substantial costs."

According to data from investment research firm Hudson Labs, this year, publicly listed companies with a market value of at least $2 billion and mention of AI infrastructure in financial filings have a combined construction-in-progress total of about $214.5 billion.

Significant Depreciation Differences Between Chips and Buildings

The depreciable lifespan of data center buildings may be between 20 to 40 years, while AI chips may become obsolete in less than three years. Accounting advisor Olga Usvyatsky pointed out that the pace of disclosure development is not keeping up with the practical need for information on AI investments.

In recent years, tech companies have generally claimed that servers and networking equipment have longer lifespans and do not need to be replaced frequently. Reducing equipment replacement frequency helps maintain cash flow while reducing depreciation expenses and increasing reported profits, sometimes by hundreds of millions of dollars.

Research from Ideagen shows that in 2024, public companies made 79 adjustments to their estimates of asset useful lives, many of which were extensions for servers and networking equipment, marking the highest level since 2020.

Significant Disclosure Differences Among Tech Giants

There are notable differences in the construction-in-progress disclosures among major tech companies. Alphabet, Google's parent company, recorded $50.6 billion in unused assets in 2024, up 44% year-on-year. Amazon reported $46.4 billion, up 62%. Meta Platforms' construction-in-progress totaled $26.8 billion, an increase of 10%.

In contrast, Microsoft did not provide specific numbers, only disclosing in its most recent annual report a commitment of $32.1 billion, mainly for data center construction and upgrades.

These construction-in-progress accounts accounted for 30%, 18%, and 22% of each company's net fixed assets, respectively. Since companies usually purchase graphics processing units (GPUs) during data center construction, AI chips are often included in the construction-in-progress amounts.

Investors Call for More Detailed Disclosure

Jack Ciesielski, owner of investment research firm R.G. Associates, said that investors want to see breakdowns of information by project and component, which would help them better understand how much of the total is exposed to obsolescence risk; any dissatisfaction with construction-in-progress stems from a lack of distinction between hardware facilities such as electronics and buildings.

Ravi Gomatam, co-founder of accounting and tax research firm Zion Research Group, pointed out that tech company shareholders are struggling to fully assess the risks of AI investment, in part because firms rarely disclose their chip usage experience.

Rich Jones, chairman of the U.S. Financial Accounting Standards Board, said that the organization does not currently require itemizing construction-in-progress projects on the standard-setting agenda but will conduct further advocacy on general disclosure improvements in ongoing agenda reviews. Bobby Carnes, clinical associate professor of accounting at the University of Southern California, summed it up: "At the start, construction-in-progress is a black box. When the project is done, it's still a black box on the back end."

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