Is AI Forcing a Midlife Crisis on Cloud Hardware?

Cloud Hardware's Mid-Life U-Turn: Why AWS and Azure Are Reversing Course on Lifespans

Last month, we asked whether AWS or Azure was poised to reign as the AI King, expecting Q4 2024 earnings to settle the debate—yet as the numbers rolled in, an even bigger twist emerged: both cloud giants abruptly reversed course on how they depreciate their hardware.

For years, cloud giants Amazon Web Services (AWS) and Microsoft Azure seemed to believe their servers and switches were like fine wine – getting better (or at least lasting longer) with age. Both companies repeatedly extended the "useful life" of their data center hardware, delaying retirement and depreciation. Microsoft's CFO famously announced in 2022 that Azure's servers and network gear could depreciate over 6 years instead of 4, crediting software optimizations and better tech for stretching asset life. This accounting tweak was a boon for the bottom line – Microsoft expected to save $3.7 billion in FY 2023 alone from the change. Not to be outdone, AWS performed similar magic: in early 2022 it bumped server lifespan from 4 to 5 years (and networking gear from 5 to 6), and by 2024 AWS was convinced it could squeeze out a 6th year on its servers, adding an extra $900 million to Q1 2024 profit thanks to lower depreciation expenses. In short, life was good – and getting longer – for cloud hardware, and depreciation schedules kept stretching in tandem with hyperscalers' confidence.

That's why it came as a surprise in this month's earnings when AWS abruptly hit the brakes on this trend. After years of lengthening hardware lifespans, Amazon's finance chief announced a plot twist: for certain AI-focused infrastructure, 6 years was too long – they're cutting it back to 5. This marked the first major reversal of the cloud depreciation trend, and it has industry-watchers asking: What's changed?

AWS's 2025 Reversal: When 6 Years Became 5 (Again)

In AWS's Q4 2024 earnings call, CFO Brian Olsavsky revealed the company had completed a new "useful life study" and didn't love the results. The pace of technological advancement in AI/ML was accelerating so fast that some of AWS's shiny new gear will get old faster than expected. His response: starting January 2025, a subset of servers and networking equipment (think AI training servers with GPUs and their high-powered switches) will have a 5-year lifespan, not 6. Essentially, AWS is un-doing last year's extension – at least for the AI-related hardware.

This wasn't just a minor policy tweak – it carries a price tag. Shortening the depreciation schedule means AWS will recognize costs sooner, shrinking operating profit by an estimated $700 million in 2025. It's a bit ironic: in 2024 extending server life boosted Amazon's profit, and in 2025 shortening it will dent the profit. (One might imagine AWS's accountants ruefully swapping out their "stretch" rubber band for a "snap-back" one.) Moreover, Amazon disclosed it had retired some servers and networking gear early, taking a one-time $920 million depreciation charge – essentially admitting that certain hardware wasn't going to make it to its previously expected old age.

Microsoft's Azure is on a similar path, although they haven't made a public announcement specifically about depreciation lives shortening (yet). Azure was the first of the big clouds to push to a 6-year server life, back in 2022, and enjoyed the immediate financial upsides. But Microsoft is facing the same competitive and technological pressures as AWS. In recent earnings guidance, CFO Amy Hood has been upfront that Microsoft's capital expenditures are rising sharply to build AI capacity, and she indicated that the "mix of spend will begin to shift back to short-lived assets" – meaning more servers and chips, fewer ultra-long-lived buildings – which will increase depreciation going forward​. It's as close as you get to saying: we know we just gave ourselves a longer timeline, but now we'll be buying so many new servers (and replacing them faster) that the effective life will shorten again. Microsoft hasn't explicitly said "we're going back to a 5-year depreciation for servers," but their commentary leaves breadcrumbs pointing that direction.

Why Shorter Lifespans?

What's driving this depreciation U-turn after years of lengthening hardware life? A few compelling (and intertwined) reasons stand out:

The Bigger Picture: Tech Strategy with Financial Side-Effects

For cloud providers, depreciation schedules are more than just accounting arcana – they're a window into strategy and confidence in technology. The past trend of lengthening hardware life spoke to maturing infrastructure: slower innovation in basic server tech, improved durability, and a dash of cost-optimization. The 2025 reversal, spearheaded by AWS, signals a new chapter where AI-centric hardware is evolving so fast that even trillion-dollar companies feel compelled to shorten their depreciation timetable. Azure and others will be watching closely; no one wants to fall behind either technologically or financially. We can expect more granular approaches – perhaps separate depreciation pools for AI gear versus conventional hardware – as CFOs seek to accurately reflect these differing life cycles without tanking their earnings completely.

Financially, the impact of this shift is significant but manageable for the giants. Amazon's $700 million hit to 2025 operating income is notable, but in the context of AWS's $39.8 billion operating profit in 2024, it's a blip the company can absorb. Microsoft hasn't yet reported a similar hit, but if and when it revises Azure's depreciation, there could be a substantial swing given the scale of its data center assets (recall that extending to 6 years added ~$3.7 billion to Microsoft's 2023 profit, so shortening would do the opposite). Investors and analysts are already factoring this in: some have trimmed earnings forecasts for cloud providers, recognizing that depreciation of all that fancy new AI kit will weigh on margins in coming years. In the grand scheme, these companies are willing to take a short-term accounting hit for long-term strategic gain – they'd rather invest aggressively in AI infrastructure (and reflect its true cost) than hold onto outdated assumptions for the sake of immediate profit.

In an entertaining twist, the cloud titans are learning a classic lesson: what goes up must come down – and what gets extended can also be shortened. The reversal on hardware lifespan is a testament to how quickly the tech landscape is shifting under our feet (or under their racks). Even the most unglamorous accounting line can hint at seismic changes in strategy. For AWS and Azure, it's a balancing act: keep customers happy with the latest hardware, keep investors content with healthy profits, and ensure that when their servers hit a mid-life crisis, it's the productive kind.

Ultimately, the shortening of depreciation lives for AI hardware suggests that cloud providers are embracing a faster innovation cycle, effectively saying: "We'll replace gear sooner, because we need to – and we'll account for it accordingly." It's a pragmatic move, and likely a wise one. In the race to AI supremacy, the useful life of a server may not be what it used to be, but the ability to adapt – even in accounting practices – is more valuable than ever. The cloud is not only about elastic computing; elastic accounting is part of the toolkit too, stretching in good times and snapping back when the tech demands it. As AWS and Azure navigate this new era, the rest of the industry is surely taking notes (and perhaps recalculating their own depreciation spreadsheets). After all, in the cloud business as in life, change is the only constant – sometimes even for the estimated life of a server.