Google admits depreciation costs are soaring amid furious bit barn build

Google says the mega capital splurge on datacenters in recent years is putting more strain on its balance sheet due to rising depreciation costs, yet it still plans to splash $75 billion on bit barns in 2025.

The ad search-cum-cloud titan spent $17.2 billion on "technical infrastructure" in calendar Q1 [PDF], said CFO Anat Ashkenazi on a conference call to discuss the results. "The largest components," she added, "being investment in servers, followed by datacenters" to support the search, cloud and DeepMind divisions.

Google owns and operates 135 datacenters across the world and uses colocation providers as part of its cloud interconnect services. Yet the CFO admitted it is still not able to entirely meet customer demand.

"We're in a tight demand supply environment and given that revenues are correlated with the timing of deployment of new capacity, we could see variability in cloud revenue growth rates depending on capacity deployment each quarter," she warned the financial analysts that had dialled in.

Ashkenazi reminded them that Google Cloud exited 2024 with "more customer demand than we had capacity. And that was the case this quarter as well.

"We expect relatively higher capacity deployment towards the end of 2025," she added. "We still expect to invest approximately $75 billion in CapEx this year. The expected CapEx investment level may fluctuate from quarter-to-quarter, due to the impact of changes in the timing of deliveries and construction schedules."

With the tech industry gambling on an anticipated surge in orders for cloud and AI from enterprise customers, Microsoft pledged to fork out $80 billion on new bits barns in 2025, AWS said it will outspend the $75 billion it used last year and Meta is projecting costs of $60 billion to $65 billion.

Google's capital expenditure in 2024 was between $50 billion to $55 billion, executives said on the conference call, so it intending to shell out between 36 and 50 percent more in this calendar year.

AI is only a factor in Google expanding digital empire - as it is for Microsoft and AWS - yet top brass will hope those bets pay off. The downside of bit barn building is depreciation of assets.

Ashkenazi said Google is trying to "offset as much of the headwind associated with the increase in infrastructure costs", but admitted: "it will become more difficult. As I said, the depreciation will accelerate. We had about a 31 percent year-over-year growth in depreciation this quarter and it will be higher as we go throughout the year."

Looking at the financial results from Q1, shareholders might not be overly concerned. Google turned over $90.234 billion, up 12 percent year-on-year. The Ads division accounted for $66.88 billion of this, up from $61.66 billion a year ago.

The subscription, platform and devices wing of Google brought in $10.37 billion. The Cloud division bounced 24 percent to $12.26 billion and generated operating profit of $2.17 billion, up from $900 million. Google is the third largest provider of cloud infrastructure globally, behind AWS and Microsoft.

Revenue from Google's 2Other "Other Bets" division was $450 million.

The word tariff wasn't used on the call, even though the duties would directly impact Google's devices business. US President Donald Trump's Hokey Cokey/ Pokey policy has sent share prices tumbling - no doubt a great opportunity for very rich people to make money from short-selling - and caused mayhem for multiple industries including tech. Some projects are being paused.

Philipp Schindler, chief business officer, did, however, admit Google is "obviously not immune to the macro environment." He refused to comment extensively on the de minimis exemption (for shipped packages worth under $800), with Trump ending his tariff loophole for low-cost packages imported to the US.

This move will "cause slight headwind to our Ads business in 2025, primarily from APAC-based retailers," said Schindler. He said Google has experience in "managing through uncertain times."

Elsewhere in Google's empire, CEO Sundar Pichai talked up its AI opportunity, but we suspect readers would have already expected this to be the case. So we'll spare you the details in this article.

Google spent $15.1 billion in share repurchases during Q1 and distributed $2.4 billion in dividends, so more than it spent on technical infrastructure.