Alphabet embarks on global bond spree to fund record spending

[NEW YORK] Alphabet is borrowing far and wide to finance the unprecedented spending plan behind its artificial intelligence (AI) ambitions.

The Google parent is set to raise US$20 billion from a US dollar bond offering on Monday (Feb 9), more than the US$15 billion initially expected, and is also pitching investors on what would be its first ever offerings in Switzerland and the UK. The latter would include a rare sale of 100-year bonds, the first time a tech company has tried such an offering since the dotcom frenzy of the late 1990s.

Alphabet last week said that it’s planning for as much as US$185 billion 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 that the investments are already boosting revenue, as AI encourages more online searching.

Other big tech companies are ramping up their spending too. Alphabet, Amazon.com, Meta Platforms and Microsoft have forecast capital expenditures that will reach about US$650 billion 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 raised US$25 billion from a bond that attracted a record US$129 billion of orders at its peak.

Alphabet’s US dollar bond sale on Monday has drawn more than US$100 billion of orders. It’s in as many as seven parts, according to sources with direct knowledge of the matter.

Pricing on the longest portion of the offering, a bond maturing in 2066, tightened to a premium of 0.95 percentage point above Treasuries from 1.2 percentage points earlier.

Morgan Stanley expects hyperscalers to borrow US$400 billion this year, up from US$165 billion 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’s Nathaniel Rosenbaum, expect the massive issuance to push corporate bond spreads wider.

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“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 did not respond to a comment request. JPMorgan Chase, Goldman Sachs and Bank of America, which are helping manage the US dollar bond sale, declined to comment.

Deutsche Bank, Royal Bank of Canada and Wells Fargo are also managing the deal.

Alphabet said last week that it will spend as much as US$185 billion this year, far surpassing predictions. The company also reported fourth-quarter earnings that beat the average of analyst estimates compiled by Bloomberg.

The technology firm last tapped the US bond market in November, when it raised US$17.5 billion in a deal that attracted about US$90 billion 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 6.5 billion euros (S$9.8 billion) of notes in Europe at the time.

Capital spending in AI, cloud infrastructure and data centres is expected to reach US$3 trillion in aggregate by 2029, according to a Bloomberg Intelligence estimate. BLOOMBERG