On Amazon and Server Lifespans

So there we were the other day, skimming the latest from Deep Quarry, a newsletter on financial statement analysis written by accounting aficionado Olga Usvyatsky. 

She had been picking apart Amazon.com’s latest quarterly report, and noted that the e-commerce giant had revised the useful life of certain servers and networking equipment downward from six to five years. That change, Usvyatsky noted, will have the practical effect of reducing 2025 operating income by $700 million. Moreover, Amazon ($AMZN) also decided to retire some equipment early; that led to $920 million in accelerated depreciation in Q4 2024 and will reduce 2025 operating income by another $600 million.


Wait a minute. The useful life of computer servers, why does that sound familiar… 


Because Calcbench wrote about that exact issue in 2021! 


Back then, we noted that Google ($GOOG) and Microsoft ($MSFT) had both extended the estimated life of their computer servers from three years to four, which had the result of increasing net income at both companies by several hundred million dollars. Now we’re seeing the opposite effect.


OK, but why is Amazon trimming the estimated life of its servers? Consider this excerpt from the company’s 10-K:


“These … changes above are due to an increased pace of technology development, particularly in the area of artificial intelligence and machine learning.”


That is, the fast-evolving demands of AI are forcing Amazon to de-commission old servers that can’t keep up with the huge computing power required for AI. Fascinating, because that’s just about the opposite of what everyone expected several years ago when they were extending server life. Then came generative AI in 2022, and the world changed. 


Our point: even seemingly small changes in accounting policy can lead to big changes in corporate earnings. The data to sniff out such changes is there; you just need to know what to look for. 


Calcbench has the data. Usvyatsky’s analysis is a great example of how you could put that data to work, to understand why a company might be changing up its accounting policies and what the larger implications might be for peer companies you follow.

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