What Constitutes Depreciation and Its Income Statement Location
Amazon’s depreciable asset base is incredibly diverse and highly complex, stemming from its dual identity as an unparalleled global e-commerce logistics titan and the world’s largest public cloud computing provider. The “Property and Equipment” category encompasses heavy fulfillment equipment, millions of square feet of fulfillment center buildings, physical retail stores, and the massive server and networking infrastructure underpinning Amazon Web Services (AWS). It also includes a vast portfolio of capitalized internal-use software and digital content, such as episodic television and movies for Prime Video, as well as capitalized music content. Furthermore, a significant portion of its asset base involves finance lease right-of-use assets and build-to-suit lease arrangements.
On the consolidated statement of operations, Amazon allocates depreciation and amortization across multiple operating expense lines based strictly on asset utility, making it impossible to identify a single D&A figure without turning to the cash flow statement. Fulfillment center depreciation, including warehouse robotics and sortation equipment, is housed squarely within the “Fulfillment” expense line. Corporate assets and administrative facilities fall under “General and administrative”. Most importantly for the AI boom, data center, server, and networking depreciation primarily falls under the “Technology and infrastructure” line item, which serves as the primary expense engine for AWS.
Factors Affecting Depreciation
Amazon’s depreciation profile is entirely unique among Big Tech because executive management recently took the rare and painful step of reducing the estimated useful life of its AI infrastructure, embracing the harsh reality of rapid hardware obsolescence rather than masking it. Effective January 1, 2025, while Amazon extended the useful life of its heavy fulfillment equipment from ten to thirteen years, it simultaneously reduced the useful life of a significant subset of AWS servers and networking equipment from six years back to five years.
Management specifically cited the “increased pace of technology development, particularly in the areas of artificial intelligence and machine learning” as the primary catalyst for this reduction. By shortening the life of these servers, Amazon willingly accepted an estimated $700 million hit to its 2025 operating income. Furthermore, Amazon opted to prematurely retire certain older servers that were no longer viable for advanced AI workloads, resulting in $920 million in accelerated depreciation charges in the fourth quarter of 2024 alone, cascading into a further estimated $600 million operating income reduction for 2025. Concurrently, Amazon shocked Wall Street by announcing a record-shattering $200 billion capital expenditure plan for 2026, driven by custom silicon (Trainium2), generative AI services, and data center expansion.
5-Year Historical Trends (2021 - 2025)
Amazon consistently posts the highest absolute depreciation figures in the global technology sector due to the combined, immense capital intensity of maintaining a global logistics network and expanding the AWS footprint.
Fiscal Year (Ends Dec. 31) | Total D&A (Cash Flow Statement) | Capital Expenditures | Free Cash Flow |
2021 | $34.30 Billion | -$61.05 Billion | -$14.73 Billion |
2022 | $41.92 Billion | -$63.65 Billion | -$16.89 Billion |
2023 | $48.66 Billion | -$52.73 Billion | $32.22 Billion |
2024 | $52.80 Billion | -$83.00 Billion | $32.88 Billion |
2025 | $65.76 Billion | -$131.82 Billion | $7.70 Billion |
The massive leap in D&A from $52.80 billion in 2024 to $65.76 billion in 2025 (a 24.5% year-over-year increase) is a reflection of multiple intersecting factors: the sheer volume of new AWS infrastructure coming online, the impact of shortening the server useful life to 60 months, and the accelerated depreciation charges stemming from the early retirement of obsolete server racks. Furthermore, the cash flow statement highlights the immense strain of the infrastructure buildout, with free cash flow plummeting from $32.88 billion in 2024 to just $7.70 billion in 2025 as CapEx exploded to nearly $132 billion.
Predictions and Forecasts (2026 - 2028)
With an authorized $200 billion in capital expenditures for 2026 , Amazon is pulling its depreciation curve sharply forward. Because Amazon has shortened its server depreciation schedule to 60 months (rather than the 72 months utilized by Alphabet and Microsoft), a disproportionately large amount of this $200 billion will hit the income statement rapidly over the next three years. Forecasts model Amazon’s consolidated D&A surpassing $88 billion in 2026, easily crossing the $100 billion threshold by 2027, and approaching $120 billion by 2028 as the aggressive five-year amortization of AI infrastructure layers forcefully on top of traditional fulfillment network depreciation.
The Pragmatic Capitalist and the Burden of Obsolescence
Amazon’s financial narrative heading into the latter half of the decade is defined by a brutal, yet deeply refreshing, pragmatism regarding the stark realities of artificial intelligence hardware. The announcement of a $200 billion capital expenditure budget for fiscal 2026 was met with significant market trepidation, driving the equity down by double-digits in extended trading immediately following the disclosure. However, the true narrative lies buried in the footnotes of the company’s 10-K filings, specifically the divergence in how Amazon manages its depreciation schedules compared to its direct hyperscaler peers. While competitors are stretching server lives to six years to artificially insulate their gross margins, Amazon’s executive team, led by CEO Andy Jassy, has publicly acknowledged the fundamental truth of the AI arms race: the silicon becomes technologically and economically obsolete long before the accounting models suggest it should.
By reducing the estimated useful life of a massive tranche of AWS servers and networking equipment from six years back to five years - and voluntarily taking immediate accelerated depreciation hits to retire outdated racks early - Amazon is absorbing the financial pain upfront. This decision creates an immediate, severe near-term drag on operating income within the “Technology and infrastructure” reporting line, stripping an estimated $1.3 billion from 2025 operating income between life-reductions and early retirements alone. Yet, this aggressive write-down strategy clears the balance sheet of technological deadwood, ensuring that the carrying value of AWS assets accurately reflects their true economic utility in a rapidly evolving market. More importantly, it prevents the creation of a massive, hidden “depreciation cliff” that could blindside investors in the late 2020s if millions of servers required sudden impairment.
The profound tension in Amazon’s financial model is the juxtaposition of its two massive, asset-heavy divisions. The global logistics and fulfillment network is a mature infrastructure play; the decision to extend the useful life of heavy fulfillment equipment from 10 to 13 years is a highly logical recognition of physical durability, providing an estimated $900 million tailwind to operating income that partially offsets the AWS depreciation hit. However, AWS is operating in an entirely different paradigm. The $200 billion CapEx projection for 2026 implies that AWS is essentially rebuilding its entire computational foundation from the ground up to accommodate generative AI, large language models (LLMs), and its custom proprietary silicon, including Trainium2 and Inferentia.
For financial analysts, the fact that Amazon combines its depreciation into functional expense lines remains intensely frustrating, as it masks the exact, isolated margin profile of the new AI cohorts. However, the cash flow statement provides an unvarnished view of the financial strain. Amazon’s free cash flow plummeted to a mere $7.7 billion in 2025, down from nearly $33 billion in 2024, directly resulting from the $131.8 billion CapEx bill. With 2026 CapEx modeled at $200 billion, Amazon faces a very real scenario where its core operations, despite generating massive absolute cash flow (roughly $180 billion in operating cash), cannot fully fund the infrastructure buildout without running a cash shortfall. The strategic bet is that AWS’s scale and deep integration into the global enterprise ecosystem will allow it to monetize this $200 billion investment faster than the five-year depreciation schedule can drag down the bottom line. If AWS revenue growth - currently accelerating at roughly 24% - were to decelerate, the resultant operational deleveraging would be severe, placing immense pressure on the retail division to subsidize the AI ambitions.