Alphabet Seeks Up to $25 Billion Bond Sale to Step Up AI Spending

Alphabet Inc., Google’s parent, is preparing to sell as much as $25 billion of corporate bonds to fund a broader push into artificial intelligence. The planned offering adds to a wave of heavy borrowing by big tech companies to finance AI, stoking concern in credit markets about rising risk.

Bloomberg reported on August 6 that Alphabet is pursuing a fund-raising plan in the US investment-grade bond market for as much as $25 billion. The bonds are set to be offered in as many as 10 tranches with maturities ranging from two years to 40 years. Initial price guidance for the longest-dated bonds was about 1.55 percentage points above US Treasuries.

Investor demand for bonds has softened as competition to build AI infrastructure fuels a string of large borrowings by big tech companies. Credit-default swap premiums on five-year debt issued by major technology firms have climbed to record levels. In early New York trading on August 6, Micron Technology and SanDisk fell more than 5% and 10%, respectively. Bloomberg said concern over the burden of AI spending has intensified since Alphabet unveiled its large-scale investment plan.

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The bond sale comes just after Alphabet sharply increased capital spending to expand its AI investment. The company recently raised its capital expenditure forecast for this year to as much as $20.5 billion, more than double last year’s level. The spending push drove Alphabet to negative free cash flow of $5.86 billion in the second quarter, marking its first quarterly cash-flow deficit since its 2004 initial public offering.

Competition over AI investment is also intensifying in the bond market. Six major tech companies — Nvidia, Alphabet, Amazon, Meta, SpaceX and Oracle — have issued a combined $244 billion of corporate bonds this year, according to Dealogic. That is more than double their combined $108 billion of issuance for all of last year.

But investor sentiment toward AI-related corporate bonds has weakened. Since Alphabet announced its large investment plan last month, concern has grown over the burden of AI spending. Initial demand last week for Meta Platforms’ $12.5 billion bond sale tied to its data-center project, as well as for Amazon bonds, fell short of expectations. Secondary-market spreads on new AI-related bonds, including those from SpaceX, are also widening.

The jump in big tech bond issuance is also increasing the market’s burden of absorbing new supply. The Financial Times reported that yields on $12 billion of bonds issued by Meta in connection with a data-center project under construction in Texas climbed as high as 7.5%, approaching junk-bond levels. That means bond prices fell sharply. John Aylward, chief investment officer at Sonas Asset Management, said “an extraordinary situation” is unfolding. Uncertainty over the pace and cost of financing AI investment is undermining market confidence, he added.

Lee Hye-in and Maeng Jin-gyu, Hankyung.com reporters hey@hankyung.com