The ‘Big-5’ tech companies, Alphabet, Amazon, Meta, Microsoft and Oracle, have been bingeing on borrowings that have taken up their ‘invisible debts’ eight-fold in a period of four years, according to a report in Nikkei Asia titled ‘Five US tech giants' hidden debts soar to $1.65tn on opaque AI funding’.
The report suggests that these companies have resorted to innovative and aggressive structures that help to keep a big part of the debt pile outside their books.
Special purpose vehicles (SPVs) and variable interest entities (VIEs) are some that have found favour between these Big-5 companies and their Big-4 auditors, that sign off these accounts as ‘true and fair’.
These contraptions are believed to stay clear of the accounting rules and clarifications issued which have been playing catch-up with the jugglery of off-balance sheet funding ever since the collapse of some companies at the dawn of the millennium, like Enron and WorldCom.
Companies tend to keep debts off their books when the revenue generated from such debts is inadequate to service them. These investments happen in futuristic and high-risk projects whose outcome is uncertain and the aggregation of the debt would impact the current earnings and the feel-good effect of the books.
The big artificial intelligence (AI) investments of the hyper-scalers reportedly fall in this category, with highly uncertain outcomes, whose financial benefit cannot be easily measured at this juncture. Without a quantifiable benefit either on the cost side or in additional revenue, bringing these debts on the books will impair the financial attractiveness of these businesses that have been rocketing the stock markets for some time now.
How, despite the tightening regime of accounting standards and the history of accounting scandals of the past that continue to cast a shadow of dodgy bookkeeping and complicit auditing, the who’s who of corporate America can manage such contrivances is fit for debate.
To understand the type of structure that companies employ and believe would relieve them of featuring the debt on their books, an example can be found in the accounting note of Meta Inc for the year ended 31 December 2025 -
“In October 2025, we entered into an arrangement to co-develop a data center campus in Louisiana (the Venture). This Venture provides strategic optionality and flexibility, enabling us to effectively meet future infrastructure capacity needs as AI markets and technologies develop. At Venture formation, we contributed $4.30 billion of held-for-sale assets, net of liabilities, and we received a one-time distribution of $2.55 billion. We hold a 20% membership interest in the Venture, which is accounted for under the equity method included within non-marketable equity investments on the consolidated balance sheets. We provide construction management, administrative and property management services to the Venture. The parties have committed to fund their respective pro rata share of approximately $27 billion in total estimated development costs.
We also entered into lease agreements with the Venture for the use of properties on the data center campus, which will commence in 2029. The aggregate initial lease commitment is approximately $12.31 billion, with each property having an initial four-year lease term and options to renew for a total lease period of up to 20 years. In addition, we have provided residual value guarantees (RVG) with an aggregate threshold of approximately $28 billion that decreases over time. If we decide to terminate or not renew a lease, and if certain other conditions are met, our maximum RVG payment would equal any shortfall between the fair value at that time and the RVG threshold for that property. As of December 31, 2025, RVG payments are not probable and therefore, no liability has been recorded.”
Shorn of the complex verbiage, Meta is the sole user of the data centre facility being developed by a ‘Venture’. It has a 20% stake for a very negligible investment (US$1.75bbn-- billion) which was contributed in assets. The entire management and technical support to the venture are provided by it. It effectively has the user rights for a 20-year period (couched as 4 years + an optional later period) and has guaranteed the residual value of the asset such that the lease rentals and the RVG will match the total costs. In other words, the debt commitment will not be defaulted.
The structure reportedly employed by Google is shown in the graphics here to help a reader understand the way the big-tech companies are able to bypass the accounting guidelines that were tightened to precisely catch these structures either by mandating a consolidation (control as a lever) or carry potential future lease obligations as a contra entry as both asset and liability, to avoid the arbitrage between financial transactions and operating leases.
Meta’s accountants, Ernst & Young LLP, found no disagreement with the management’s accounting treatment of the transaction and have made peace with it, appending a note of a critical audit matter (CAM) as part of its report.
CAM or KAM is a nuanced way of the accountant co-opting the investor into complex accounting matters where the commercial reality leaves no room for any disagreement with the company’s board but creating a shield in the event of a blowback and a regulator coming heavily for not showing due scepticism in the work.
The audit firms may argue that, unlike in the case of Enron, where there was accounting misfeasance, the present structures have sufficient legal props to ensure that they neither meet the criteria for consolidation nor trigger lease-accounting provisions that would bring future liabilities back onto the balance sheet.
The collapse of Arthur Andersen in the wake of the Enron scandal having still not faded from public memory, whether the regulators watch from the sidelines to wait for a blowout in the financial markets or proactively step in to check if the status quo exposes the system to major defaults, is where they will be tested if the lessons have been duly learnt.
(Ranganathan V is a CA and CS. He has over 45 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as a senior advisor post-retirement, handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
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