AI Investment Frenzy: Debt of Tech Giants Like Alphabet Doubles

Odaily Odaily reports that tech giants globally, heavily investing in building AI data centers, have doubled their total debt over the past five years. To fuel an unprecedented capital expenditure frenzy, these companies have turned to debt financing, deeming it necessary to drive economic transformation. According to data compiled by Bloomberg, the five largest US companies by data center investment - Alphabet Inc., Amazon, Meta Platforms Inc., Microsoft, and Oracle - have collectively added approximately $350 billion in debt over the past five years. These firms are betting that cutting-edge AI services will eventually generate substantial new revenue. Investors have previously been enthusiastic about these companies, actively subscribing to bonds issued by them in various currencies.

However, according to sources familiar with the matter, Amazon's $25 billion bond issuance this week encountered unusual lukewarm demand, indicating that the capital market's capacity to absorb continuous financing by tech giants to support AI investments is not unlimited. Yet, for most of these highly profitable companies, the cost of debt remains relatively limited at present. The interest expenses of the aforementioned five companies totaled over $10 billion last year, more than double that of 2019, but still insignificant compared to the free cash flow of one of them.

Taking Google for example, as of the end of March, its free cash flow after deducting capital expenditures from operating cash flow reached $64 billion. However, not all companies have equally robust financial positions. Amazon's free cash flow turned negative in the quarter ending March 31; Oracle's cash burn is expected to accelerate further, with its debt in 2025 estimated to be about 2.5 times its annual sales. S&P lowered Oracle's credit rating to the lowest tier of investment grade on Thursday, citing the company's continuously expanding AI investment spending. (CLS)