Key Points:
- Alphabet plans to sell at least $3.5 billion in euro bonds across 6 different tranches.
- The technology giant expects to spend up to $190 billion this year on artificial intelligence infrastructure.
- Major technology companies will spend a combined $725 billion on artificial intelligence equipment this year.
- Investors show signs of fatigue as the market absorbs nearly $300 billion in artificial intelligence debt.
Alphabet returned to the European debt market on Monday to kick off its latest megabond deal. Google’s parent company plans to sell at least €3 billion, or $3.5 billion, in bonds. This move comes just a few months after the technology giant sold nearly $32 billion in debt across United States dollars, British sterling, and Swiss francs.
A person with direct knowledge of the financial move shared specific details about the structure. Alphabet split the new bond offering across 6 different tranches. The longest portion of this deal includes a note that matures in 2063. Financial experts placed the initial price talk for this specific long-term note around 205 basis points above midswaps.
The company will put the fresh cash toward general corporate purposes. Executives plan to use some of the money to repay existing outstanding debt. However, this massive borrowing effort is directly tied to the company’s aggressive artificial intelligence strategy. Just last week, Alphabet announced it plans to spend up to $190 billion on capital expenditures this year. The company desperately needs this money to build the massive data centers that power its artificial intelligence programs.
Other major technology players share this same expensive ambition. Alphabet, Meta Platforms, Microsoft, and Amazon recently increased their spending projections for the year. Together, these 4 corporate giants plan to spend up to $725 billion this year. They will pour this unbelievable amount of cash directly into artificial intelligence data center equipment and other necessary capital projects.
Ian Horn works as a portfolio manager at the financial firm Muzinich & Company. He closely watches these massive cloud-computing companies borrow money. Horn noted that these big technology companies will soon dominate the bond market just like they currently dominate the stock market.
Alphabet already proved it can attract massive crowds of eager investors. Back in February, the company raised $20 billion in its largest United States dollar bond sale ever. Executives initially expected to raise only $15 billion, but investor orders quickly reached an astonishing $103 billion.
During that same busy period, Alphabet also sold its very first debt deals in Switzerland and the United Kingdom. This included a very rare sale of 100-year bonds. The financial market had not seen a major technology company price a century-long bond offering since the chaotic dot-com frenzy of the late 1990s.
Despite this early success, some financial experts see dark clouds forming on the horizon. Companies have already sold roughly $300 billion in various types of debt to fund artificial intelligence projects. Because buyers now have so many options, bankers must offer stronger incentives and higher compensation to persuade people to hand over their cash. Recent deals by massive cloud providers show clear signs of deep investor fatigue.
Meta Platforms provided a perfect example of this growing fatigue just last week. Facebook’s parent company priced a $25 billion bond sale on April 30. On that same day, Meta shares suffered their biggest drop in 6 months as shareholders worried that massive artificial intelligence spending might never generate real profits.
To attract buyers for the $25 billion deal, Meta priced nearly all 6 portions of the offering at higher risk premiums than its previous sale in October. This move clearly signals that investors demand more compensation for their money. The peak orders for the April sale also fell noticeably below those from the October sale.
Horn pointed out that investors hold real concerns about how the financial market will absorb all this new debt. He explained that buyers receive higher pay for taking on this extra risk, even if the high payments do not fully reflect the companies’ actual credit fundamentals. He views these technology bonds as a good opportunity for investors to earn extra money without actually lending money to riskier, less stable companies.
Four major global banks handle the heavy lifting for the new Alphabet deal. Barclays, BNP Paribas, Deutsche Bank, and HSBC are responsible for managing the latest euro-currency offering. They expect to finalize the exact pricing for the massive bond sale late Monday afternoon.
