Meta Boosts Earnings with Accounting Adjustment on AI Infrastructure

Meta Platforms Inc. implemented a subtle change in January that is projected to significantly enhance the company's financial performance in the coming years. The adjustment relates to the depreciation timeline for its substantial artificial intelligence (AI) infrastructure, which consists of servers and networking equipment.

Previously, the "useful life period" of these assets ranged from four to five years. However, Meta has extended this period to five and a half years. While seemingly insignificant, this tweak holds substantial implications for the company's earnings.

Reduced Depreciation Expenses

Meta estimates that the change will result in reduced depreciation expenses of $2.9 billion in 2025 alone. This represents nearly 4% of the company's estimated pre-tax profits for the year. With Meta planning to increase capital expenditures on AI capabilities by up to 75% this year, the impact on earnings will be even greater in 2026.

Industry-Wide Trend

Meta is not the only company adjusting depreciation schedules to optimize financial results. Microsoft Corp. and Oracle Corp. have also extended the useful lives of their server and networking equipment. However, Amazon.com Inc. has adopted the opposite approach, recognizing the shrinking lifespan of such equipment.

Technological Obsolescence

Unlike real estate assets with decades-long amortization periods, computing and networking hardware depreciate rapidly. The relentless pace of technological innovation means that even the most advanced equipment becomes outdated within a few years, similar to smartphones.

Expert Perspective

"Extending server life can have legitimate reasons, but it also reduces depreciation and improves the bottom line," explains Ravi Gomatam, partner at Zion Research Group.

Investor Confidence

Despite the potential earnings impact, investors remain optimistic about the company's AI strategy. Meta shares have closed at record highs for 17 consecutive days. The stock has seen a slight decline in New York trading at 10:22 a.m., but investor confidence remains strong.