Microsoft’s recent $68 billion in physical assets additions were driven by AI-related purchases

Data comes from Microsoft SEC filings, with additional category context provided by earnings call quotes. Category balances are found in Note 6 (Property and Equipment) in annual 10-K and some quarterly 10-Q filings. Quarterly data starts in fiscal year 2026, which began on July 1, 2025. Note that per the filings, this data includes finance leased assets.

Category text descriptions and tags used are:

• Land: us-gaap:Land
• Buildings & improvements: msft:BuildingsAndImprovements
• Leasehold improvements: us-gaap:LeaseholdImprovementsGross
• Servers, network equipment & software: msft:ComputerHardwareAndSoftware
• Furniture & equipment: us-gaap:FurnitureAndFixturesGross

Note that “software” here refers exclusively to software developed only for internal use. It has not been mentioned in earnings calls as a contributor to capex growth.

Gross PP&E includes all assets acquired but not yet disposed of or retired, valued at original purchase price. It follows the identity:

ending gross PP&E = beginning gross PP&E + additions − disposals/retirements

The biggest contributors to additions are typically cash capex and new finance leases, but changes in accounts payable for PP&E, capitalized interest and acquisitions may also contribute.

Disposals/retirements are usually due to previously purchased PP&E reaching end-of-life or being sold. Given their higher depreciation rates relative to buildings, most disposals are servers and networking equipment reaching end-of-life.

Earnings calls for the preceding two quarters) note end-of-life equipment replacement as a contributor to capex in addition to growing AI demand. This means gross PP&E changes track AI-driven infrastructure additions more closely than total capex does, since replacement spending is largely excluded.

Microsoft’s (and other hyperscalers’) financial filings do not disclose the precise share of growth attributable to AI, nor do they give granular breakdowns within each category. Investor communications such as earning calls indicate AI is a substantial driver, and other analysts attribute the spending increases to AI.

Replacement of end-of-life equipment may not precisely match decreases in gross PP&E due to disposals, as prices may have changed since original purchase.

In addition, net changes to physical assets are not equal to capital spending because they reflect both capex and asset retirements. This means they understate what share of Microsoft capex goes to IT equipment because IT equipment depreciates more quickly. Microsoft depreciates servers and networking equipment over 6 years, while buildings are longer-lived. While total retirements can be estimated from the gross PP&E identity, they can’t be attributed to individual categories from the available data.

The standardized capex measure we use in our hyperscaler capex data insight does not include changes in accounts payable for PP&E in capital expenditures, following the practice of the majority of the industry. When a company receives physical assets, they often consider it to be a capital expenditure in the quarter that the asset is paid for, rather than the quarter it was received. However, this still counts towards the company’s increase of physical assets and is included here. Over this period, Microsoft’s PP&E in accounts payable increased by about $16 billion. This results in an increase in gross assets about $3 billion higher than capex as we reported it, rather than the $13 billion lower it would be due to retirements if it weren’t for differences in payment timing.