What Constitutes Depreciation and Its Income Statement Location
Oracle’s depreciable base consists primarily of its property, plant, and equipment (PP&E), which includes computer equipment, specialized hardware, buildings, and leasehold improvements. Unlike the consumer tech giants, Oracle also records a highly significant amount of amortization related to intangible assets acquired through large-scale M&A, most notably its $28 billion acquisition of Cerner Corporation in 2022. The useful life of Oracle’s computer equipment is estimated strictly between three to ten years, a slightly wider band than its hyperscaler peers.
On its condensed consolidated statements of operations, Oracle embeds the depreciation of its servers and data center infrastructure primarily into “Cloud and software” expenses, “Hardware” expenses, and “Services”. Oracle does explicitly list “Amortization of intangible assets” as a standalone line item on the income statement, providing some transparency regarding its M&A activity, but the raw depreciation of the actual AI physical infrastructure remains entirely blended into the cost of delivering its cloud services.
Factors Affecting Depreciation
Oracle’s depreciation curve is poised for a violent, upward inflection. Historically operating as a legacy database software provider, Oracle has aggressively pivoted to become a primary physical infrastructure provider for hyperscalers and AI startups. In early 2026, Oracle announced an unprecedented, high-stakes plan to raise $45 to $50 billion via a combination of debt and equity specifically to build massive cloud infrastructure capacity to meet contracted demand from clients including OpenAI, Meta, Nvidia, and xAI.
This represents a massive, sudden step-up in capital intensity. Oracle is currently building 37 new data centers specifically to cater to these hyperscaler partners, including a sprawling 1,100-acre, gigawatt-scale campus in Abilene, Texas. Because Oracle depreciates computer equipment over a relatively short window (starting at three years for some assets), this massive $50 billion influx of property and equipment will rapidly translate into soaring depreciation expenses hitting the income statement almost immediately upon deployment. Furthermore, Oracle recently divested its interest in the Ampere chip company, signaling a strategic shift toward “chip neutrality” and a reliance on purchasing external GPUs (like Nvidia), which carries a higher capital cost.
5-Year Historical Trends (2021 - 2025)
Oracle’s historical profile reflects a company that was gradually, methodically scaling its cloud operations before suddenly throwing its entire balance sheet into the generative AI infrastructure race in 2025.
Fiscal Year (Ends May 31) | Total D&A (Cash Flow Statement) | Capital Expenditures | Free Cash Flow |
2021 | $2.92 Billion | -$2.14 Billion | $13.75 Billion |
2022 | $3.12 Billion | -$4.51 Billion | $5.03 Billion |
2023 | $6.11 Billion | -$8.70 Billion | $8.47 Billion |
2024 | $6.14 Billion | -$6.87 Billion | $11.81 Billion |
2025 | $6.17 Billion | -$21.22 Billion | -$0.39 Billion |
Notice the massive, sudden jump in CapEx in 2025, spiking to $21.22 billion, which drove the company’s free cash flow completely negative for the year (-$394 million). Because of the mechanical lag in accounting assets must be completed and placed into service before depreciation begins the D&A figure for 2025 barely moved, staying artificially flat at $6.17 billion. This creates a severe optical distortion between the cash flying out the door and the reported net income.
Predictions and Forecasts (2026 - 2028)
With Oracle actively raising $50 billion to fund further data center buildouts in 2026, the historical D&A figures are essentially irrelevant. Forecasts project that Oracle’s D&A will spike aggressively into the double digits in fiscal 2026 as the 2025 hardware comes online. Over the next three years, depreciation is expected to scale exponentially. Visible Alpha estimates project that Oracle’s depreciation alone will top $33 billion (representing a massive 18% of total expected revenue) by fiscal 2029.
The Ultimate Leveraged Infrastructure Play
Of all the major technology companies riding the generative AI wave, Oracle’s financial transformation is the most extreme, and its accounting blind spots the most treacherous for retail and institutional investors alike. For decades, Oracle was a high-margin, incredibly sticky software business, generating robust, predictable free cash flow through enterprise database licenses and recurring support fees. Today, management is effectively executing a leveraged buyout of the AI physical infrastructure market. The announcement in early 2026 that Oracle intends to raise up to $50 billion in debt and equity to fund data center buildouts for clients like OpenAI, Meta, and xAI fundamentally alters the company’s risk profile. Oracle is rapidly transitioning from a software provider into an outsourced, highly levered infrastructure landlord for the largest tech companies in the world.
The disconnect between Oracle’s cash flow reality and its income statement has reached critical, unsustainable levels. In fiscal 2025, Oracle’s depreciation and amortization (D&A) remained completely flat year-over-year at $6.17 billion. Yet, in that exact same period, capital expenditures tripled to $21.22 billion, driving the firm’s free cash flow negative. Because the physical servers and massive gigawatt data centers take significant time to construct and be placed into service, the depreciation hit is severely delayed. Investors looking solely at Oracle’s 2025 operating margins are viewing a financial illusion; they are seeing the revenue benefits of early cloud adoption without bearing the expense weight of the infrastructure that supports it.
When the $21 billion from 2025 and the incoming $50 billion from 2026 hit the balance sheet and enter service, the subsequent depreciation expense will be staggering. Visible Alpha estimates that Oracle’s depreciation will skyrocket to $33 billion by 2029, representing an estimated 18% of total revenue. Because Oracle embeds this depreciation within its “Cloud and software” operating expenses, the headline gross margins of the cloud division are destined for severe compression. S&P Global Ratings has already noted that Oracle’s leverage metrics will remain stretched, forecasting adjusted leverage to reach the high-4x range in fiscal 2027 and 2028.
The bullish counter-argument, heavily promoted by management, is found in Oracle’s Remaining Performance Obligations (RPO). Oracle reported a staggering RPO backlog of $523 billion in late 2025, fueled by massive multi-year commitments from hyperscalers who desperately need power and space. Management argues that the $50 billion capital raise is entirely de-risked because the data centers are essentially pre-leased to blue-chip tenants on ironclad long-term contracts. However, the operational execution risk remains immense. Oracle is taking on massive debt to buy rapidly depreciating assets (GPUs and servers) that will be technologically obsolete in three to five years. If Oracle is depreciating these assets over their maximum useful lives to protect GAAP earnings, it runs the precise risk that Amazon is currently trying to avoid: a balance sheet bloated with carrying values that far exceed their true economic worth. If any of the major AI startups default, or if the next generation of AI chips renders the current infrastructure too power-inefficient to run profitably, Oracle’s leveraged bet will result in catastrophic asset impairments. Oracle is no longer a traditional software stock; it is a highly levered, macro bet on the physical plumbing of the AI economy.