AI investment frenzy drives doubling of debt for tech giants like Alphabet

Odaily Odaily News The global tech giants building AI data centers on a massive scale have doubled their debt over the past five years. To support an unprecedented capital expenditure frenzy, these companies have turned to debt financing, considering it necessary to drive economic transformation. According to data compiled by Bloomberg, the five companies with the largest data center investments in the US—Alphabet Inc., Amazon, Meta Platforms Inc., Microsoft, and Oracle—have added a total of approximately $350 billion in debt over the past five years. These companies are betting that cutting-edge AI services will eventually generate substantial new revenue. Investors have been eagerly supporting these companies, actively subscribing to their bond issuances in various currencies.

However, according to insiders, Amazon's $25 billion bond issuance this week faced an unusual lack of interest, indicating that the capital market's capacity to absorb continuous financing from tech giants for AI investment is not unlimited. Nonetheless, for most of these highly profitable companies, the cost of borrowing is currently still relatively limited. The combined interest expenses of these five companies last year exceeded $10 billion, more than double that of 2019, but still negligible compared to the free cash flow of one of these companies.

Taking Google as an example, as of the end of March, its free cash flow (operating cash flow minus capital expenditures) reached $64 billion. However, not all companies are equally financially robust. 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 projected to be about 2.5 times its annual sales. On Thursday, S&P downgraded Oracle's credit rating to the lowest level within the investment grade, citing the company's continuously expanding AI investment spending. (CLS)