Big Tech AI Spree Revives Accounting Devices That Toppled Enron

Deep Dive

Big Tech AI Spree Revives Accounting Devices That Toppled Enron

July 21, 2026, 8:45 AM

By Amanda Iacone Graphics by Irfan Uraizee

Email

Share To:Facebook

LinkedIn

Enron Corp. exploited US accounting rules to hide from investors and lenders hundreds of millions in debt it had bundled into off-balance sheet entities — obligations that contributed to one of the biggest corporate collapses in US history.

Twenty-five years later, new risks have emerged as some of the world’s most valuable companies create similar financing vehicles that can mask how much debt they’re taking on, as the technology industry looks to spend more than $3 trillion to power artificial intelligence systems.

Tech companies are leaning on these arrangements to package debt tied to billions in assets with an uncertain return — including chips, servers, and energy equipment — while spreading those risks among developers, vendors, and lenders. Substantial infrastructure costs tied up in the financing structures aren’t flowing through the parent company’s financial statements, offering unaware investors a rosier view of performance and leverage.

“The accounting treatment itself is in fashion. But what if one of these companies was a house of cards and was propping itself up with this accounting treatment?” said Tom Selling, technical accounting consultant. “To me, that’s the risk.”

Alphabet Inc. and Meta Platforms Inc. each have turned to vehicles known as variable interest entities (VIEs) as part of the financing mix needed to construct data centers and related energy infrastructure.

Meta, the parent of Facebook, last year formed a joint venture, a VIE, to build a Louisiana data center through a partnership with Blue Owl Capital. The social media titan’s maximum exposure for the venture is $46 billion, according to its filings with the Securities and Exchange Commission. The company announced last week that it would expand its planned campus and is expected to spend as much as $250 billion on the project, Bloomberg News has reported.

Alphabet, Google’s parent company, keeps VIE arrangements for leases and credit backstops for data centers along with other guarantees related to power infrastructure off its balance sheet.

AI financing arrangements can take many forms and may require different accounting.

Microsoft Corp. provides few details about its VIEs, only stating that it doesn’t consolidate those entities.

Alphabet, Meta, and Microsoft declined to elaborate beyond their recent SEC filings detailing how they apply US accounting rules in response to questions about their AI financing and any off-balance sheet arrangements. They declined to answer or didn’t respond to questions about how the Enron scandal influences modern accounting.

The nature of the financing deals give tech companies the option to walk away, for a price, if they don’t ultimately need the data capacity in the future. High-powered computer chips underpinning those investments have an uncertain shelf life. Development of more powerful chips or demand that falls short could render the complexes obsolete.

Whether corporate managers consolidate these arrangements, or record another entity’s debt on the balance sheet, is one of the most difficult judgment calls in accounting. Auditors highlighted Meta’s assessment whether to consolidate its Louisiana data center, noting the “significant judgment” involved.

Accounting for AI

Enron had tried to take advantage of Financial Accounting Standards Board guidance that at the time allowed companies to avoid booking side arrangements on the balance sheet if those deals involved a small equity stake from a third party.

Accounting for those complex arrangements has evolved since then, imposing constraints to curb abuses of the off-balance sheet treatment. Companies must give investors more details in the financial statement footnotes about the nature of the entities and their exposure.

Modern lease accounting rules also provide investors with a forecast of certain significant lease commitments related to data centers that could eventually pad their balance sheets and hit cash flows.

Oracle Corp., for example, has agreed to backstop another entity’s lease for up to $3.3 billion. The database management company has $260 billion of future lease commitments mostly for data centers that will eventually roll onto its balance sheet, according to its SEC filings. Ratings agency S&P Global downgraded Oracle’s credit earlier this month due in part to its “stretched leverage.”

Chipmaker Nvidia has inked arrangements with its vendors, with a reported $119 billion in future purchase obligations in its most recent SEC filings, to advance AI infrastructure. The company announced in March a multibillion-dollar purchase commitment for optics technology and a related investment.

Purchase and computing capacity commitments are typically not booked on corporate balance sheets until the services or goods are received.

Oracle declined to comment and Nvidia didn’t respond to questions about their accounting for AI investments.

Under current consolidation guidance, a company would report the assets and liabilities of a VIE if the company has both the power to direct the entity’s significant activities and faces exposure to any significant gains or losses of the structure.

Alphabet, for example, keeps its arrangements for leases and credit backstops for data centers off its balance sheet because it doesn’t direct the structures and isn’t the “primary beneficiary,” according to its first quarter report.

To finance Meta’s Louisiana data center, dubbed Hyperion, both Meta and Blue Owl invested equity into a separate legal structure. That entity took on $27 billion in debt while another related legal entity will serve as the landlord and a Meta subsidiary will be the sole tenant of the project, according to details provided by ratings agency S&P Global.

Meta determined it shouldn’t bring billions in debt from the Louisiana project onto its own balance sheet because it isn’t responsible for finding tenants to replace or join it at the nearly 4,000-acre campus — a critical job that impacts the entity’s economic performance, the social media company said in its most recent quarterly SEC filing. Meta said its role is limited to construction management, along with administrative and property management services.

Trillions Pressure Accounting

Transactions fueling data-center construction are providing the latest test for rules for such off-balance sheet vehicles including whether the accounting accurately tracks who is responsible for risks related to the ventures.

Meta’s auditors at Ernst & Young said it was “challenging” to evaluate whether the social media giant has the power to direct the activities of its Blue Owl joint venture.

Corporate managers’ assessments of whether to consolidate another business or entity are difficult to contest because they depend on the specific details of the contracts, said David Gonzales, a senior accounting analyst with Moody’s. Companies should more clearly explain why they do or don’t control an entity, he said.

To Ben Butler, an investment analyst for Veritas Investment Research Corp., Meta should bring its Hyperion data center project onto its balance sheet.

Meta — as the sole tenant of the project, an equity investor and property manager — appears to have the power to direct its activities, Butler said. The social media giant also has disclosed billions in obligations related to the project, he said.

Managing Optics

Off-balance sheet arrangements more broadly, often called special purpose vehicles, can give corporate leaders a tool to manage the optics of their financial reporting and project a healthier picture.

Those arrangements may not necessarily trigger accounting rules for variable interest entities or consolidation.

SEC staff are watching closely to ensure companies describe their relationships with other entities and the accounting they apply, Kurt Hohl, the regulator’s chief accountant, said last week during an audit industry webinar.

Not showing interest payments on credit funding AI infrastructure projects boosts profit metrics like EBITDA, said Jennifer Law, chief financial and operating officer at K2 Integrity, a risk consulting firm.

“It can speak levels about what stage we’re at if companies are having to rely on SPVs to make their return on capital look good, to make their free cash flow look good, to make leverage look more attractive,” Butler said.

Ratings agency Moody’s assesses future lease commitments as it weighs the debt load of companies. Those future payments will drain cash, hitting metrics like free cash flow, Gonzales said.

“If we just looked at the financial statements, we would be more or less short sighted: missing liabilities, missing obligations, missing key elements of these structures that really truly represent the economics,” Gonzales said.

Investors have to dig through disclosures attached to corporate financial statements to find details on the off-balance sheet structures and how each firm accounts for those arrangements and any related obligations.

The information is there, but finding it requires more work than if Meta, for example, borrowed directly to finance the build out, said Gil Luria, head of technology research for D.A. Davidson & Co.

“Enron’s crime wasn’t having special purpose vehicles. Enron’s crime was hiding them,” Luria said.

Photo credits: David Paul Morris/Bloomberg (California high-speed rail project, Louisiana LNG export facility); Chip Somodevilla/Getty Images (Artemis II Launch); Maryland Transportation Authority (Key Bridge Replacement); Gateway Development Commission (Hudson River Tunnel Project)

To contact the reporter on this story: Amanda Iacone in Washington at [email protected]

To contact the editors responsible for this story: Bernie Kohn at [email protected]; Amelia Gruber Cohn at [email protected]