Alphabet is turning to the bond market soon after increasing its capital spending forecast. The company wants to raise more money to support its growing investments in AI infrastructure.
A preliminary prospectus filed Thursday morning shows that Alphabet plans to sell debt in 10 parts: eight with fixed interest rates and two with rates that can change over time. This filing comes after Alphabet announced on July 22 that it now expects to spend up to $205 billion this year, an increase from its earlier estimate of no more than $190 billion.
According to Bloomberg News, Alphabet could raise up to $25 billion through this bond sale, based on information from people familiar with the situation. Google did not respond right away to a request for comment. The final amount raised will be announced after the pricing and interest rates are set with investors. Earlier this year, Alphabet raised $20 billion in the U.S. bond market as part of a larger multi-currency debt deal. The company said it may use the new funds to pay off existing debt and for general business needs, with much of the increased spending focused on AI infrastructure, hiring, and related costs.
Alphabet is following Amazon, which raised $25 billion in the bond market in July, as more big tech companies use debt to fund their AI projects. Other major data-center operators like Meta, Microsoft, and Oracle have also increased their capital spending. According to research firm Epoch AI, these five companies are expected to control about 71% of the world’s total AI computing power by the end of 2025.
The combined free cash flow for these companies is expected to go negative this year, dropping to about negative $2.8 billion from $187 billion in 2025. It is forecast to fall even further to around negative $41 billion in 2027. This helps explain why more companies are turning to debt as a way to raise money.
The large amount of new debt, falling free cash flow, and unclear long-term returns from AI investments have made some investors nervous. This concern has appeared in the market for five-year credit default swaps linked to Alphabet’s debt. The cost of insuring against default reached its highest point in at least five years in late July, but has eased a bit in recent days.
Most investors do not think a company with Alphabet’s strong credit rating is likely to default. However, the recent rise in credit default swap prices shows that banks and other market players are paying more to protect themselves against possible risks from Alphabet’s debt.
