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Commonly confused · Cloud Computing

CapEx vs OpEx: What's the Difference?

CapEx is upfront spending on physical assets, such as servers and data centers, that are depreciated over years. OpEx is ongoing spending on services and consumption, such as monthly cloud bills, that is expensed in the period it occurs. Moving to the cloud generally shifts IT spending from CapEx to OpEx.

Capital Expenditure (CapEx)

Full definition
vs

Operational Expenditure (OpEx)

Full definition
Capital ExpenditureOperational Expenditure
Payment timingLarge upfront purchaseOngoing, pay as you go
AccountingDepreciated over the asset's useful lifeDeducted in the current period
OwnershipYou own the assetYou consume a service
Capacity planningMust forecast and buy aheadScale with demand
RiskOver- or under-provisioningUnexpected bills if usage is not governed
IT exampleBuying servers and building a data centerCloud subscriptions and consumption-based billing
Remember it

CapEx buys the car; OpEx pays for the ride share.

Exam tip

Fundamentals exams ask which model the cloud uses (OpEx, consumption-based) and its benefits. Reserved capacity paid monthly is still generally treated as OpEx even though it involves a commitment.

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