Shortly after Google's parent company, Alphabet, raised its forecast for capital expenditure, the tech giant is tapping the bond market to raise additional capital.
A preliminary prospectus filed by Alphabet Thursday morning showed it is selling debt split into 10 tranches. Eight of those will be fixed-rate notes and two will be floating-rate notes, meaning their interest rates will fluctuate over time. The announcement comes after Alphabet, on July 22, said it was planning to spend as much as $205 billion this year, up from its prior guidance of no more than $190 billion.
Alphabet will raise as much as $25 billion from the latest bond offering, Bloomberg News said citing people familiar with the matter. Google didn't immediately respond to a Barron's request for comment.
Companies publish a filing with the exact amount raised once the pricing and interest rates are finalized with investors. Back on Feb. 13, Alphabet tapped the U.S. bond market for $20 billion, which was part of a larger multi-currency debt blitz.
The filing says proceeds from the latest bond offering may be used to repay outstanding debt and for other general corporate purposes. The company raised its capital expenditure forecast partly because of spending on AI infrastructure, hiring, and other artificial intelligence-related expenses.
Like Alphabet, Amazon recently tapped the bond market, raising $25 billion in July. Other big hyperscalers -- large-scale data center operators -- including Meta, Microsoft, and Oracle have also ramped up spending. Together, these five companies hold an estimated 71% of the world's cumulative AI compute as of year-end 2025, according to research firm Epoch AI.
The group's aggregate free cash flow is estimated to fall to negative $2.8 billion this year, from $187 billion in 2025. In 2027, aggregate free cash flow is expected to fall to negative $41 billion. That makes tapping the bond market or looking at other avenues for capital an obvious choice.
But the rising issuance, falling free cash flows, and uncertain payouts from AI investments have unnerved investors. One sign is the market for five-year credit default swaps.
The cost to insure Alphabet's debt against default rose to 67.89 basis points on July 29, meaning buyers of protection would pay 0.68% of the bond's face value annually over a five-year period. It was the highest premium in at least five years.
It has since eased to 55.91 basis points, FactSet data show.
Nobody seriously believes a company like Alphabet, with top-rated bonds, is on the verge of default. But the recent widening in its credit default swaps suggests banks and other investors are increasingly paying to hedge their exposure.
Comments