MS Funding the AI Buildout Beyond the Balance Sheet

M August 25, 2026 02:57 AM GMT

Global Valuation, Accounting & Tax | North America Morgan Stanley & Co. LLC Foundation

Todd Castagno, CFA, CPA GVAT Strategist

AI: Funding the Buildout Beyond

GVAT Strategist Leases, debt, equity, and purchase commitments are extending Mariah Thompson GVAT Strategist the data center buildout beyond self-funded hyperscaler cash

flow. Each new arrangement, whether on-balance sheet or not, requires committing future cash, and further capex revisions require incremental sources of capital.

Key Takeaways Hyperscalers are expected to spend more than $1.2tn on cash capex in 2027, versus an estimated $1tn of total operating cash flow.

Hyperscalers are using leases, issuing public debt, halting share repurchases, and issuing equity to fund incremental capex.

More than $3.1tn of commitments and guarantees from hyperscalers + NVDA and AVGO are enabling third parties to obtain financing to fund AI infrastructure.

Capex is understated, and FCF is overstated to the extent that operating leases are used to obtain data center construction financing via SPVs.

If financing costs increase with incremental commitments, returns on new AI infrastructure investment will need to cover the rising cost of capital.

The rush to build compute infrastructure to meet rising demand has resulted in investment levels well in excess of cash generated in operations, which are largely being funded by private credit loans to special purpose vehicles (SPVs) and, more recently, hyperscaler debt and equity issuances.

The need for capital to support the build: In order to achieve the lowest financing costs possible, hyperscalers are providing various forms of credit support for the data center buildout, many of which are off-balance sheet today (see Off-Balance Sheet, On the Hook).

Hyperscalers are also committing to larger and longer-dated purchase commitments to secure GPUs, memory, and networking equipment to be available when data centers are completed. As of their latest SEC filings, hyperscalers' undiscounted commitments total more than $2.7tn, or ~3 years of current operating cash flow.

Now, chip companies are also stepping in to lend their balance sheets in further support of financing compute capex as seen in Broadcom's announced chip leasing facility to support up to 20GW of compute capex and reports of new structures from Nvidia. As investors look to how high capex could go, discussions have shifted to what the source and cost of the next leg of funding will be.

For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

Exhibit 1: Hyperscalers, NVDA, AVGO disclosed off-balance sheet commitments total more than $3.1tn, with more financing structures under development Lease Backstops $44 AI Lab Investment $22 GOOGL Purchases $707 Leases $85

Future Lease Energy Data Center Guarantee $36 Backstops $24 Backstop $8

META Purchases $349 Leases $279 El Paso Guarantee $13

Contingent Purchase Commitments $36

MSFT Purchases $229 Leases $329

AMZN Purchases $130 Leases $137 AI Lab Credit Facility $15

Leases $32 Committed Investments $32

NVDA Potential Chip Credit Facility Residual Value Support $125 Purchases $155 (reported $500bn facility with 25% RVS)

AVGO Purchases $128 Chip Lease Residual Value Support $29

Source: Company Filings, Morgan Stanley Research.