R&D Expense (Research & Development)
The costs a company incurs to develop new products, technologies, or services, expensed as incurred under GAAP.
What is R&D Expense?
Research and development (R&D) expense covers the costs associated with innovating and creating new products, processes, or services. Under US GAAP (ASC 730), most R&D costs must be expensed immediately as they are incurred rather than capitalized as assets — even though R&D is an investment in future growth. This conservative treatment can make R&D-intensive companies appear less profitable than they are on a GAAP basis. The exception is software development costs after technological feasibility is established, which may be capitalized. R&D as a percentage of revenue is a key metric for assessing a company's innovation intensity. Tech and pharmaceutical companies typically spend 10–30% of revenue on R&D.
Example
Alphabet spent $49 billion on R&D in FY2024 — approximately 15% of revenue — funding projects across AI research (DeepMind), quantum computing, Waymo self-driving, and improvements to core search and advertising products. Despite this massive spend, GAAP requires the full amount to be expensed in the year incurred.