Alphabet(GOOGL), the parent company of Google, has set a record in global bond issuance with plans to issue century bonds to support its AI investments.
On Monday, February 9, Alphabet raised $20 billion through a dollar-denominated bond issuance, surpassing the initial plan of $15 billion, while also issuing bonds in Switzerland and the UK markets for the first time. The dollar bond offering attracted more than $100 billion in subscription orders.
The GBP bond issuance by Alphabet includes bonds with maturities ranging from 3 years to 100 years, with pricing potentially occurring as early as Tuesday. The UK pound-denominated bond market has long been favored by issuers seeking long-term financing due to strong demand from UK pension funds and insurance companies.
As previously reported by Wall Street Watch, Alphabet announced its capital expenditure plan for this year, with up to $185 billion expected, exceeding the total expenditure of the past three years. Morgan Stanley expects the cloud computing giant to borrow $400 billion this year, driving the total investment-grade bond issuance to a record $2.25 trillion.
Some credit strategists have warned that such large-scale issuances could push corporate bond spreads higher. Vishwas Patkar, Head of U.S. Credit Strategy at Morgan Stanley, said that this situation is similar to 1997-98 or 2005, with “credit performance not looking great but not at the ‘end-of-cycle’ stage.”
A Return of 100-Year Bonds to the Market
The 100-year bond market has long been dominated by governments and institutions such as universities. For companies, the uncertainty of mergers, outdated business models, and technological obsolescence makes issuing bonds with such long maturities extremely rare.
Most tech giants issue bonds with maturities of up to 40 years, with IBM having issued 100-year bonds in 1996.
According to data compiled by Bloomberg, this will be the first time a tech company has issued 100-year bonds since Motorola in 1997.
In the GBP 100-year bond market, only a few issuers, such as Oxford University, Electricité de France, and the Wellcome Trust, have previously issued such bonds, with the most recent issuance taking place in 2018. Ultra-long bonds were also issued during the period of ultra-low interest rates following the 2008 financial crisis, with countries like Austria and Argentina issuing similar bonds.
As reported by Wall Street Watch, the shortest maturity of the dollar-denominated bonds issued on Monday, the 3-year bond, saw the highest demand, pricing at just a 0.27 percentage point premium over U.S. Treasuries, significantly lower than the initial discussion of a 0.6 percentage point premium. The 40-year bond priced at a 0.95 percentage point premium, also lower than the initially discussed 1.2 percentage point premium. The 2066 bonds’ premium also narrowed from 1.2 percentage points to 0.95 percentage points.
Bank of America, Goldman Sachs, and JPMorgan Chase acted as the lead underwriters for the bond offerings in all three currencies. Deutsche Bank, Royal Bank of Canada, and Wells Fargo also participated in managing the U.S. dollar bond issuance.
Tech Giants Spark Financing Frenzy
Alphabet’s move is part of a broader financing trend in the tech industry.
Alphabet, Amazon, Meta, and Microsoft are expected to spend a combined $650 billion on capital expenditures by 2026, with the majority of the investment directed toward AI infrastructure.
Bloomberg Industry Research estimates that capital expenditures on AI, cloud infrastructure, and data centers will reach $3 trillion by 2029.
Last week, Oracle issued $25 billion in bonds, attracting a record $129 billion in peak orders. In October last year, Meta raised $30 billion, setting a record for the largest non-merger, investment-grade bond issuance.
According to data from Bank of America Securities, the five major AI cloud computing giants—Amazon, Google, Meta, Microsoft, and Oracle—raised a total of $121 billion in the U.S. corporate bond market last year, compared to an average of just $28 billion per year from 2020 to 2024.
Morgan Stanley expects the borrowing scale of these cloud computing giants to surge from $165 billion in 2025 to $400 billion this year. This wave of issuances is expected to drive the total investment-grade bond issuance to a record $2.25 trillion in 2026.
Market Impact and Strategist Warnings
This bond issuance frenzy is generally pushing up borrowing costs for tech companies but has limited impact on the broader bond market.
Investors in investment-grade corporate bonds are currently demanding the lowest average additional yield over U.S. Treasuries in decades.
However, some credit strategists have warned that the large-scale issuance could push corporate bond spreads wider. Patkar from Morgan Stanley and Nathaniel Rosenbaum from JPMorgan both expect the massive issuance to widen corporate bond spreads.
According to Barclays, while pent-up merger demand and corporate debt refinancing are expected to drive overall corporate bond issuance this year, the biggest driver will be financing for AI-related investments.
The market has raised concerns about whether tech giants can support this unprecedented spending spree solely through cash flows. Alphabet, Amazon, and Meta have all raised their capital expenditure plans in recent earnings reports, prompting investors to focus on the sustainability of their financing.