Alphabet plans to raise US$80 billion for AI goals, Berkshire to invest US$10 billion

[NEW YORK] Alphabet is looking to raise US$80 billion in equity offerings, including an investment from Berkshire Hathaway, the Google parent said on Monday (Jun 1), in its aggressive push to fund a costly expansion of its artificial intelligence infrastructure.

The deal brings in Warren Buffett’s diversified holding company as a major new investor, adding a high-profile endorsement of Alphabet’s long-term AI and cloud strategy.

Alphabet raised its annual capital spending forecast by US$5 billion to between US$180 billion and US$190 billion in April, ramping up investments to capture growing AI-driven computing demand with its business AI tools and custom chips.

The company has embarked on an unprecedented spending spree to build the infrastructure that it needs to develop cutting-edge AI models and meet demand from customers who want to buy its chips to fulfil their own AI ambitions.

Google is trying to capitalise on a growing appetite for its homegrown AI chips, known as tensor processing units, or TPUs. They have become a key alternative to Nvidia’s market-leading processors in an industry that requires tremendous amounts of computing power.

The Google parent will sell US$10 billion worth of shares to Berkshire in a private placement, comprising US$5 billion in Class A common stock at US$351.81 per share and US$5 billion in Class C capital stock for US$348.20 per share, both below Monday’s closing prices.

The company’s shares were down 2 per cent after the bell.

“All companies are thrilled when Berkshire takes positions, because it is the kind of shareholder that companies like to have,” said Steven Check, president and chief investment officer of Check Capital Management, which has investments in Berkshire stock.

Berkshire’s investment adds to the position it has built since the third quarter last year. Last month, Berkshire said that it more than tripled its stake in the Google parent, which at US$16.6 billion has become one of its largest common stock investments.

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“This additional purchase underscores that Greg Abel (Berkshire CEO) believes that Alphabet will earn a reasonable return on its AI capex spending even with the firm issuing additional shares,” said Bill Stone, chief investment officer at Glenview Trust Company.

Alphabet said that it aims to raise US$30 billion through concurrent public offerings backed by investment banks, split evenly between depositary shares tied to mandatory convertible preferred stock and Class A and C shares.

In addition, the company expects to launch a US$40 billion at-the-market offering programme in the third quarter, giving it flexibility to sell Class A and Class C stock gradually over time.

“The company is experiencing strong demand for its AI solutions and services from enterprises and consumers, at levels that are exceeding the company’s available supply,” Alphabet said.

Alphabet has raised more than US$85 billion in debt across six currencies and markets over the last year, bringing its total debt balance to over US$100 billion, the company said. REUTERS/BLOOMBERG