Capex intensity and the amortisation wave
Capitalising defers cost rather than removing it. Each capitalised build adds to a stock of intangibles that amortises in later periods. As an AI programme scales, the accumulating amortisation charge forms a wave that drags future operating profit, which is the trade the current-year EBITDA lift buys.
Deferral, not removal
Capitalising shifts cost from this year's P&L to future years through amortisation IAS 38§97. The total cost recognised over the asset's life is the same; only the timing changes. For a single build the effect is a smoothing; for a scaling programme it compounds.
How the wave builds
When each year's new capitalised build is larger than the amortisation running off older builds, the intangible balance grows and the annual amortisation charge rises. Once new capitalisation slows, the accumulated amortisation continues and operating profit feels the drag. Short useful lives bring the wave forward and make it sharper.
An entity capitalises a similar amount each year for three years, amortising each build over a short life. By year three the annual amortisation charge reflects all three builds, so operating profit carries a larger recurring charge than in year one despite similar cash spend. All figures are illustrative.
- S1IAS 38 Intangible Assets, IFRS Foundation (IFRS). https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/
- S3Applying ASC 985-20 and ASC 350-40 to software costs, Crowe (US GAAP). https://www.crowe.com/insights/how-to-apply-asc-985-20-asc-350-40-software-costs