MOUNTAIN VIEW, CALIFORNIA - AUGUST 13: The Google logo is displayed in front of company headquarters during the Made By Google event on August 13, 2024 in Mountain View, California. Google announced new Pixel phones, watches and AI features at the event. (Photo by Justin Sullivan/Getty Images) Photographer: Justin Sullivan/Getty Images North America
Yesterday, Alphabet Inc. sold $17.5 billion of bonds in the United States, after issuing €6.5 billion (US$7.48 billion) of notes in Europe, adding to a wave of borrowing from technology companies as they invest aggressively in artificial intelligence (AI).
The firm’s latest earnings showed surging demand for cloud and AI services. Technology companies are betting on a future powered by gigantic data centers filled with humming servers, which has supercharged spending on AI.
Morgan Stanley expects big firms known as hyperscalers to spend about $3 trillion on infrastructure such as data centers between now and 2028. Cash flows can fund about half of that, but debt will be a significant source of funds too.
Alphabet priced the U.S. bonds in eight parts, ranging from 3 to 50 years, according to a person with knowledge of the matter. The longest portion of the sale yields 1.07 percentage points more than Treasuries, said the person, who asked not to be identified as the details are private. Initial price talk was a spread of about 1.35 percentage points. The company received about $90 billion of orders for the securities.
The Google parent’s euro-denominated bond sale, the second biggest from a nonfinancial company this year in the region, was €250 million more than had been expected. The U.S. dollar and euro debt sales are Alphabet’s first since April, when it also tapped markets on both sides of the Atlantic.
Meta Platforms Inc. sold $30 billion of bonds last week, the biggest U.S. high-grade bond sale of the year, following a $27 billion private bond sale for a Meta-related project in Louisiana. Oracle Corp. issued $18 billion of U.S. investment-grade bonds in September.
Tech companies’ growing borrowing needs are already showing signs of weighing on corporate bond valuations. The average U.S. high-grade spread rose 0.02 percentage point, or 2 basis points (bps)—to 78 bps—on Friday, according to Bloomberg index data.
Issuance will likely remain active the first part of this month, partly because a series of frequent issuers hasn’t yet come to market and may look to issue before the end of the year, JPMorgan Chase & Co. credit strategists including Eric Beinstein and Nathaniel Rosenbaum wrote in a note yesterday. “There is room for spreads to widen a little bit more as investors think about the recent AI-related issuance and what it may mean for the pace of supply in 2026,” wrote the analysts. “But given that yields remain at attractive levels and earnings are strong, it’s hard to see this modest widening becoming a larger selloff.”
Alphabet’s latest bond sale comes after it reported jumping demand for cloud and AI services, with third-quarter sales rising to $87.5 billion. The company is investing record amounts to accelerate AI development and further push artificial intelligence into its popular products, including search, with total capital expenditures expected to reach $91 billion to $93 billion this year. The company may use the proceeds to refinance debt, among other uses. The spread on the three-year euro debt was 25 bps over the reference rate, known as mid-swaps, they added. The 39-year part was priced at 158 bps above the benchmark.
Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan, Bank of America Corp., Citigroup Inc., Morgan Stanley, and Wells Fargo & Co. led the U.S. dollar offering. Banks including Goldman Sachs, HSBC, JPMorgan, BNP Paribas, Crédit Agricole CIB, and Deutsche Bank managed the euro sale.
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