NEW YORK: Alphabet Inc is borrowing far and wide to finance the unprecedented spending plan behind its artificial intelligence (AI) ambitions, and investors can’t seem to get enough.
The Google parent raised US$20bil in its biggest ever US dollar bond sale on Monday more than the US$15bil initially expected, after racking up one of the biggest order books of all time.
It’s also planning debut deals in Switzerland and the United Kingdom, including a rare sale of 100-year bonds marking the first time a tech company has tried such an offering since the dotcom frenzy of the late 1990s.
The big borrowing spree comes just days after tech companies from Meta Platforms Inc to Amazon.com Inc said they were ramping up spending to meet their ambitious AI plans.
Their plans fanned fears that the AI arms race, and the billions of dollars of debt needed to help fund it, would weigh on credit markets.
Investors appeared to push those concerns to the side on Monday, as the Alphabet bond sale drew more than US$100bil of orders.
“Clearly we’re not in a typical capital expenditures cycle, and after previously being net savers, the companies involved are now going deep into the well for financing to secure the resources to compete,” said Andrew Dassori, chief investment officer at Wavelength Capital Management LLC.
“This is a major transition, and a critical one when thinking about potential risk and return for corporate bonds in the United States.”
Alphabet last week said it’s planning for as much as US$185bil of capital expenditures this year, more than it has spent in the past three years combined, as it invests heavily in the data centres critical to its AI ambitions.
The company said the investments are already boosting revenue, as AI encourages more online searching.
As other companies known as hyperscalers boost spending too, capital expenditures for the four biggest US tech companies are forecast to reach about US$650bil in 2026, driving a financing boom and a potentially disruptive technology that could completely reshape the global economy.
A chunk of that spending is being funded in the bond market. Just last week, Oracle Corp raised US$25bil from a bond that attracted a record US$129bil of orders at its peak.
Alphabet’s US dollar bond sale on Monday came in seven parts, according to people with direct knowledge of the matter.
The yield on the longest portion of the offering – a bond maturing in 2066 – was 0.95 percentage point more than treasuries, a tighter risk premium than the roughly 1.2 percentage point discussed earlier.
Morgan Stanley expects hyperscalers to borrow US$400bil this year, up from US$165bil in 2025.
The offering spree will likely drive high-grade debt issuance to a record US$2.25 trillion this year, Vishwas Patkar, head of US credit strategy at the bank, wrote in a note on Monday.
Some credit strategists, including Patkar and JPMorgan Chase & Co’s Nathaniel Rosenbaum, expect the massive issuance to push corporate bond spreads wider.
“We think that the playbook is similar to 1997/98 or 2005 – credit underperforms, but not ‘end of cycle’,” Patkar wrote, referring to a period when defaults rise and credit availability tightens.
Alphabet didn’t respond to a comment request. JPMorgan Chase & Co, Goldman Sachs Group Inc and Bank of America Corp, which are helping manage the US dollar bond sale, declined to comment.
Deutsche Bank AG, Royal Bank of Canada and Wells Fargo & Co also managed the deal.
Alphabet last tapped the US bond market in November, when it raised US$17.5bil in a deal that attracted about US$90bil of orders.
As part of that transaction, it sold a 50-year note, the longest corporate tech bond offering in US dollars last year, according to Bloomberg-compiled data, which has tightened in secondary markets.
The company also sold €6.5bil of notes in Europe at the time. — Bloomberg
