Microsoft to Issue First US Bond Since 2017: AAA Rating May Ease Market Concerns Over AI Financing Spree

TradingKey - Microsoft (MSFT) plans to issue its first bond offering since 2017 after releasing its first-quarter fiscal earnings report. As AI capital expenditures continue to expand and investors become increasingly focused on the pace of returns, this deal will test whether the bond market remains willing to fund the expansion of big tech companies.

According to people familiar with the matter, the bond offering will raise at least $25 billion, split into up to 10 tranches with maturities ranging from two to 40 years, and the final size may be adjusted based on demand. The proceeds will be used for general corporate purposes, including capital expenditures.

This also marks another major cloud provider entering the market for financing after Google parent Alphabet (GOOGL) issued $25 billion in bonds on August 6.

Microsoft Returns to Bond Market as Strong Cloud Business and AAA Rating Support Financing Capacity

Microsoft's bond issuance closely followed its earnings release. The company's fiscal first-quarter results announced Wednesday showed cloud revenue grew 48% while capital expenditures were controlled, easing investor concerns over excessively rapid growth in AI spending. Chief Financial Officer Amy Hood stated on the earnings call that the company will raise additional funds when financing conditions are attractive.

This provides context for understanding the transaction: business growth and spending controls have improved investor confidence in returns, while Microsoft leverages its credit advantage to secure long-term capital for future investments.

Microsoft last issued high-grade bonds in 2017, raising $17 billion. It is also the only U.S. public company alongside Johnson & Johnson (JNJ) to hold top-tier AAA ratings from both Moody's and S&P Global. A light recent issuance record, coupled with its top credit rating, makes its bonds attractive amid a wave of AI-related debt sales.

Brett Kozlowski, portfolio manager at GW&K Investment Management, believes Microsoft's financing carries an opportunistic tone, as the company has no obvious urgent need for capital, while scarce long-term AAA bonds are expected to draw buyers. He also noted that even as the market faces a surge in new supply, investors still need to diversify issuer exposure.

However, a high rating does not mean borrowing costs are immune to market dynamics. According to people familiar with the matter, initial price guidance for bonds maturing in 2066 was set at up to 135 basis points over U.S. Treasuries, roughly on par with current trading spreads for 40-year bonds from lower-rated Alphabet and Amazon (AMZN). This reflects an initial price talk level, and final pricing will reflect actual demand.

AI Debt Boom Drives Up Risk Premiums as CDS Shows Market Differentiating Borrowers

The financing terms Microsoft secures will serve as a reference point for the entire AI value chain. According to data compiled by Bloomberg, global mega cloud vendors and data center developers have raised over $313 billion through investment-grade bonds this year, nearly triple the full-year total for 2025.

Heavy financing supports data center construction and equipment procurement, while also prompting bond investors to focus more on when companies can recoup their investments. As the supply of new bonds continues to grow and benchmark interest rates rise, investors may demand higher yields, requiring companies to pay more interest.

This concern is already reflected in the credit default swap (CDS) market. Used to hedge debt default risk, CDS pricing reflects the compensation the market demands for credit risk. According to ICE Data Services, Microsoft's five-year CDS stood at around 54 basis points on Thursday, compared with roughly 116 basis points for Meta (META) and about 275 basis points for Oracle (ORCL), which are 62 and 221 basis points higher than Microsoft, respectively.

These gaps indicate that investors do not view all AI financing as carrying the same risk. Companies with stronger credit profiles retain financing advantages, while those with weaker credit metrics undertaking large-scale buildouts face demands for higher risk compensation.

If Microsoft's current issuance attracts strong subscription, it will show that capital remains willing to support AI entities with strong debt-servicing capabilities, while helping to alleviate market concerns over a broad retreat in financing.

However, it is more likely to reflect a concentration of capital among high-quality borrowers: while AI buildouts can still secure funding, borrowing costs and terms will diverge significantly depending on corporate credit quality.