Why Is Google Parent Alphabet Taking on $32 Billion in New Debt?
Key Points
The tech giant issued bonds in dollars, sterling, and Swiss francs.
It has plenty of company -- all the hyperscalers are issuing bonds.
The reason is clear; they're all seeking to fund their AI plans.
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This week, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), the parent company of Google and YouTube, issued $32 billion in new debt over the course of 24 hours. It sold $20 billion in U.S. dollar-denominated bonds and another $12 billion in bonds denominated in sterling and Swiss francs. The sterling offering included a rare 100-year note.
That might sound like an odd move by a company valued at nearly $3.9 trillion, with more than $126 billion in cash and short-term investments available.
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So, why is Alphabet taking on so much new debt? To continue its massive spending spree on AI data centers and infrastructure. Last week Alphabet announced plans to spend $185 million this year alone on its AI buildout of massive cloud-computing data centers. That's double what it spent last year.
Image source: Getty Images.
All the hyperscalers are raising money to spend on AI
In fact, all the so-called hyperscalers have announced gargantuan spending plans for AI infrastructure this year, including $100 billion by Amazon, $135 billion by Meta Platforms, and $105 billion by Microsoft. They're all tapping global debt markets to fund it.
In addition to Alphabet, all those companies have issued tens of billions of dollars in debt in recent weeks and months to raise money for capital expenditures. Oracle has been to the borrowing trough twice in the last six months, once to sell $18 billion in bonds in September of last year, and again this month for another $25 billion issuance.
For their part, bond investors have welcomed the new issuances. According to Bloomberg, which follows corporate bond market closely, demand for all of those bonds was high. There's an AI race going on among these giant tech companies. Grab your popcorn and get ready to watch.
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Matthew Benjamin has positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Oracle. The Motley Fool has a disclosure policy.
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