Meta Platforms Inc. made a small change last month that’s likely to increase the company’s profit by billions of dollars this year.
It wasn’t the release of a new product or cost cuts. It was a tweak to an accounting formula used to measure the depreciation of its expensive artificial intelligence infrastructure.
The change, disclosed in the social-media giant’s earnings materials on Jan. 29, extends the so-called useful life period of certain servers and networking assets to five and a half years, from the four to five years it previously used. While that may sound trivial, its impact on earnings will be sizable given the heavy spending on these relatively short-lived assets.
By Meta’s reckoning, the shift is expected to reduce the company’s depreciation expense by $2.9 billion in 2025, which would, on its own, amount to almost 4% of the estimated pre-tax profits for the year. With Meta planning to spend as much as 75% more this year on capital expenditures to build out its AI capabilities, the effect will be even bigger in 2026.
The changing expectations highlight how companies are grappling with the temporary shelf life of the tens of billions of dollars of new semiconductors and computers servers they are purchasing to power their AI services. Meta is now hoping that the equipment will last longer than they had expected.
“While there may be legitimate reasons to extend the server life based on their actual experience, it also decreases the depreciation in the short run and improves the bottom line,” said Ravi Gomatam, partner at tax and accounting firm Zion Research Group.
Meta’s chief financial officer, Susan Li, said on the most recent earnings call that the company is making efficiency gains “by extending the useful lives of our servers and associated networking equipment.” A Meta representative declined to comment.
Meta isn’t alone in changing its timetable on depreciation — and with it, the financial results. In 2022, Microsoft Corp. extended the useful lives of server and networking equipment to six years from four. In 2023, Oracle Corp. extended its estimate to five years, from four, according to a filing.
Others, however, have taken the opposite approach. Amazon.com Inc. said this month that the lifespan of the equipment is growing shorter — from six years to five. The change, which took effect on Jan. 1, will cut operating income by about $700 million, the company said in a filing.
