After including $628 billion in off-balance-sheet commitments, is Meta (META.US) stock "35% more expensive"?

Title context: After including $628 billion in off-balance-sheet commitments, is Meta (META.US) stock "35% more expensive"? Text: Meta's roughly $628 billion in off-balance-sheet liabilities have long been hidden in the footnotes of its financial statements. Once this figure is incorporated into enterprise value calculations, the entire valuation framework for mega-cap tech stocks is facing reconstruction. Needham analyst Laura Martin noted in a research report published on October 2 that if Meta's off-balance-sheet commitments are included in enterprise value (EV), its valuation multiple would be revised up by 35%, making the stock far more expensive for shareholders than traditional metrics suggest. Martin subsequently stated publicly on CNBC: "Meta's on-balance-sheet debt and leases total about $100 billion, while off-balance-sheet liabilities reach as high as $600 billion. If you don't include that $600 billion in EV, your valuation is 35% too low." This judgment directly challenges the market's pricing logic for Meta. More noteworthy is that when Needham's methodology is consistently applied to Alphabet, the conclusion undergoes a dramatic reversal: Google's adjusted EV/FY27E revenue multiple reaches 9.0x, higher than Meta's 8.3x meaning that after off-balance-sheet liabilities are fully disclosed, Google actually becomes the more expensive company on valuation. At the same time, Meta added roughly $68 billion in data center leases in the single month of July, and the pace of expansion in off-balance-sheet obligations is still accelerating. Whether the market has fully priced this hidden leverage has become a core question that investors in mega-cap tech stocks cannot avoid. The 5.6x gap between Meta's on- and off-balance-sheet liabilities Needham's analytical framework starts from basic accounting principles. The firm argues that "equity value is the residual value attributable to shareholders after debt and other contractual obligations are repaid," and therefore, regardless of the accounting treatment, rising obligations and commitments constitute a headwind to share price upside and should be included in EV calculations. Specifically for Meta, as of the end of June 2026, its on-balance-sheet debt and leases totaled about $112 billion, while its two categories of off-balance-sheet liabilities totaled about $628 billion, a ratio of 5.6x meaning that for every $1 of leverage disclosed on Meta's books, another $5.60 is hidden in the footnotes. The composition of these two off-balance-sheet liabilities is clearly disclosed in Note 9 of Meta's Q2 10-Q report: first, operating and finance lease obligations not yet commenced of about $279 billion, involving data centers, hosting facilities, and some network infrastructure, with lease terms extending from 2026 to 2036 and a maximum of 30 years; second, irrevocable contractual commitments of about $349.3 billion, mainly involving third-party cloud capacity arrangements, server and network infrastructure investments, data center construction, and Reality Labs consumer hardware products, of which about $53.5 billion and $81.7 billion mature in 2026 and 2027, respectively. In addition, Meta has contingent cloud capacity purchase obligations of up to $14.7 billion. After incorporating the above off-balance-sheet liabilities into EV, Meta's EV/FY27E revenue multiple rises from 6.15x to 8.32x, an increase of 35%. The accelerating pace of AI infrastructure commitments The above figures do not yet reflect the latest developments. Meta disclosed in its Q2 10-Q that in July 2026 that is, after the quarter ended the company signed an additional roughly $68 billion in data center lease obligations. This figure means that in just one month, Meta's newly added lease commitments were equivalent to about 80% of all its on-balance-sheet debt at the end of June (about $84 billion), while also expanding the "not yet commenced" lease obligation bucket by more than 10% before the third quarter had even ended. Needham therefore concluded that Meta's off-balance-sheet obligations showed a "rapid growth" trend in the third quarter. According to research published in August by Goldman Sachs credit strategist Amanda Lynam, as of the Q2 earnings season, a total of $1.5 trillion in lease commitments had been tracked across mega-cap tech companies, of which $1.0 trillion came from leases not yet commenced. Due to the special treatment under U.S. GAAP lease accounting standards, this portion of "not yet commenced" lease commitments is not reflected in the financial statements, but will create actual payment obligations in the coming years. Lynam noted that this treatment "may understate leverage levels and future liquidity needs," and predicted that "AI-related issuers will continue to bear an additional spread risk premium." Morgan Stanley's accounting team (Todd Castagno and others) expanded the scope at the end of August to include Nvidia, Broadcom, and various guarantee and backstop arrangements, arriving at a total of more than $3.1 trillion in off-balance-sheet commitments. According to ZeroHedge tracking, as of September 30, mega-cap tech companies' off-balance-sheet liabilities had reached $3.8 trillion, an increase of about $700 billion from the end of June. Google is actually the "more expensive" one: consistency correction to Needham's methodology Needham's original research report contains a methodological flaw worth noting: its table counts "irrevocable contractual commitments" for Amazon and Google parent Alphabet as zero, but the two companies' financial disclosures are not like that. Alphabet's Q2 10-Q disclosed $707 billion in long-term purchase commitments consistent with the figure used by Morgan Stanley; Amazon disclosed $130 billion in unconditional purchase obligations. These commitments are of the same nature as those Needham included for Meta. After consistently applying Needham's method to all three companies, the conclusions change significantly: Alphabet: the EV upward revision expands from 3% in Needham's original report to 21%, and the adjusted EV/FY27E revenue multiple rises to 9.0x, higher than Meta's 8.3x; Amazon: the EV upward revision expands from 9% to 14%; Meta: if further incorporating the $68 billion in new leases from July, the guarantee exposure for the Hyperion and El Paso data center projects (maximum loss exposures of about $46 billion and $13 billion, respectively), and $14.7 billion in contingent cloud purchase obligations, the actual adjustment would reach about 42%. In other words, Meta's relative scale of off-balance-sheet leverage remains the highest among the three, and Needham's core judgment holds; but the original "35% versus 3%" comparison severely understated the scale of Google's off-balance-sheet liabilities. After full adjustment, Google actually becomes the more highly valued target on an EV/revenue multiple basis. Has the market already priced this hidden leverage? Supporters argue that purchase commitments are not debt in the traditional sense they are contracts for servers, cloud capacity, and chips that Meta expects to convert into revenue. Credit rating agencies typically treat lease liabilities as debt, but generally do not treat purchase obligations the same way. In addition, Meta's disclosed $628 billion in off-balance-sheet liabilities is an undiscounted figure; calculated on a present value basis, the EV impact would narrow somewhat. However, the counterargument is equally strong. Morgan Stanley explicitly warned: "These contracts have strategic value when supply is tight, but if supply and demand normalize earlier than expected, companies may be forced to pay for excess capacity or try to renegotiate terms." In other words, the premise that purchase commitments are "not debt" is that the company will always need what it has committed to buy. Free cash flow is already showing pressure. According to Morgan Stanley, Amazon's and Google's free cash flow turned negative in the second quarter, and Meta is expected to enter negative territory next quarter. In the bond market, Goldman Sachs data show that mega-cap tech companies have already issued $250 billion in bonds this year, a sharp jump from less than $20 billion in 2024; projected issuance for 2027 is $420 billion, and that forecast does not yet include data center financing issued by special purpose vehicles (SPVs) which is precisely the core component of current off-balance-sheet structures, as Morgan Stanley pointed out. Needham maintains a "Hold" rating on Meta, and its concerns are not limited to accounting. Laura Martin noted that Meta is simultaneously pursuing custom chips, data centers, enterprise AI, commercial agents, model APIs, compute sales, smart glasses, and many other fronts, with "management attention, engineering talent, and shareholder capital spread across too many directions," and that against the backdrop of $628 billion in commitments, the margin for error has narrowed substantially. Meta's Q3 10-Q is expected to be released at the end of October. With the $68 billion in new leases from July already a foregone conclusion, the market already knows full well where that footnote is heading. This article is reprinted from Wall Street See, GMTEight editor: Chen Wenfang.