AI Investment Era Surpasses $1 Trillion, Big Tech Caught in a Spending Trap

Big Tech Turns to Bond Markets for Financing
Alphabet Reaches for 100-Year Maturities
Relentless Race to Secure AI Dominance Despite Profitability Concerns

Alphabet, the parent company of Google, has taken the unusual step of preparing a 100-year bond issuance. As competition in artificial intelligence (AI) investment intensifies, Big Tech’s reliance on debt financing has grown markedly more aggressive this year. The shift is stark: companies once flush with cash and focused on share buybacks are now borrowing heavily to fund the AI arms race.

Alphabet’s First Century Bond Since the Dot-Com Era

According to the Financial Times and Bloomberg on February 9 (local time), Alphabet has assembled a syndicate of banks to issue a 100-year maturity bond denominated in U.S. dollars. This marks Alphabet’s first foray into so-called “century bonds.” While ultra-long-dated debt remains rare, it is not without precedent. Among U.S. technology firms, IBM issued a 100-year corporate bond in 1996, while other issuers of century bonds have included Oxford University, EDF, and the Wellcome Trust.

Issuing a 100-year bond signals investor confidence that capital can be committed to Alphabet for a century with minimal credit risk. For Alphabet, the structure secures a substantial pool of capital while delivering quasi-permanent capital effects, given that repayment lies a century away. As maturities extend, the present value of principal repayment approaches zero, which can compress effective funding costs. Although headline coupon rates on ultra-long bonds tend to be higher, amortizing the cost over a century can result in a lower effective interest burden.

Alphabet’s century bond issuance will be conducted alongside seven tranches of dollar-denominated bonds with varying maturities. According to the Financial Times, Alphabet’s 40-year bonds were priced at a spread of 0.95 percentage points over U.S. Treasuries. In November last year, Alphabet raised $17.5 billion in the U.S. bond market and an additional $7.0 billion in Europe. Its 50-year bond from that issuance was the longest-dated debt sold by a U.S. technology company last year.

AI Investment Payoff Emerges, Cloud Segment Grows 48%

Alphabet’s aggressive bond issuance is driven by its AI infrastructure buildout. The company expects capital expenditures this year to reach $185.0 billion, double last year’s level and more than 50% above analysts’ consensus estimate of $115.3 billion.

Underlying this investment surge is rapid growth in Alphabet’s cloud business. Fourth-quarter cloud revenue jumped 48% year-on-year to $71.0 billion. The segment, which generated less than $20.0 billion in 2021, has more than tripled in three years, reinforcing the view that AI investment is translating into tangible revenue growth.

Advertising revenue has also benefited from AI deployment. Search advertising sales rose 15% year-on-year to $56.6 billion, exceeding market expectations of $55.0 billion. AI-driven tools for copy generation, targeting, automated bidding, and real-time data analytics have lifted advertising efficiency and monetization. Cloud profitability has improved as well, with operating margins climbing from 23.7% in the third quarter to 30% in the fourth quarter. While still below peers, Alphabet is narrowing the gap with Amazon Web Services (AWS), the global cloud infrastructure leader.

Expanding cloud market share strengthens control over the AI services supply chain, a goal that requires a global footprint of large-scale data centers. With cloud growth now firmly established, Alphabet appears set to accelerate capital deployment to scale infrastructure and unlock economies of scale.

Record AI Spending Expected Again This Year as Hyperscaler Funding Competition Intensifies

Despite mounting concerns over profitability, Big Tech players remain locked in a fierce race for early dominance in an AI market where no clear winner has yet emerged. According to Reuters, Oracle issued $18.0 billion in bonds last September, followed by Meta’s $30.0 billion issuance in October, the largest single investment-grade corporate bond sale on record excluding mergers and acquisitions. In November, Alphabet ($17.5 billion) and Amazon ($15.0 billion) followed suit.

A January report from Bank of America estimates that five major AI hyperscalers—Amazon, Alphabet, Meta, Microsoft, and Oracle—issued a combined $121.0 billion in U.S. corporate bonds last year. Even larger issuance volumes are expected this year. Microsoft CEO Satya Nadella recently stated on an earnings call that the company is expanding data center capacity at an unprecedented pace, targeting an 80% increase in AI capacity this year and a doubling of data center scale over the next two years. Meta CFO Susan Li likewise indicated that spending this year will rise materially, with the largest increases tied to its superintelligence research initiatives.

Moody’s estimates total hyperscaler spending this year at $500.0 billion. Morgan Stanley expects a substantial share of that to be financed through bond issuance, projecting annual corporate bond sales by hyperscalers to reach $400.0 billion. JPMorgan forecasts that these companies will issue at least $337.0 billion in high-grade bonds this year.

Heavy borrowing is reshaping balance sheets. Alphabet issued $25.0 billion in bonds last November, lifting its long-term debt to $46.5 billion by year-end, a fourfold increase in just one year. Meta, facing capital expenditures projected to reach as high as $135.0 billion, is also experiencing mounting cash flow pressure. Barclays estimates Meta’s free cash flow will plunge 90% this year and turn negative in 2027 and 2028. Even Microsoft, which has adopted a relatively more measured investment pace, is expected to see free cash flow decline by approximately 28% this year.