Article: Just how big is the hidden leverage of AI hyperscalers?

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According to GAAP ASC 842, lease payment obligations should only appear on a balance sheet once the lease actually starts, not when the agreement is entered into, when a right-of-use asset also appears on the other side of the balance sheet... Legally binding but non-commenced lease obligations are put in the footnotes..

We have tracked $1.5 trillion in aggregate lease commitments. Of this amount, $1.0 trillion is associated with leases which have not yet commenced. Because of the nuances of lease accounting under US GAAP, these ‘uncommenced’ lease commitments are not reflected in the financial statements, even though they will result in future lease payments (or other obligations) in upcoming years.

The first example of what this looks like was the record-breaking bond sale for Meta’s “Hyperion” data centre in Louisiana...instead of just issuing bonds off its own balance sheet, Meta formed a joint venture with Blue Owl called Beignet that would develop and own Hyperion. Meta owns just 20 per cent of Beignet, but made a rock-hard commitment to lease Hyperion for at least 20 years. That guarantee allowed Beignet to issue an amortising $27bn bond, but this debt doesn’t actually appear as debt on Meta’s balance sheet, even if it is on the hook for the payments.

Then there are promises to buy computing power, chips, equipment and electricity. These purchase commitments do not appear as conventional debt on a balance sheet either, but are in aggregate becoming hefty financial obligations that will at some point have to be paid for.

Morgan Stanley’s credit analysts...have counted another $982bn of purchase commitments across Alphabet, Microsoft, Amazon, Nvidia and Oracle at the end of the first quarter.