Alphabet Sells Historic 100-Year Bond to Power AI Growth
In a landmark move, Alphabet, the parent company of Google, has issued a rare 100-year bond as part of a massive $31.51 billion global bond offering. This strategic financial decision is driven by the company's escalating investments in artificial intelligence, which are fueling unprecedented borrowing among U.S. tech giants. The century bond sale, the first in the tech industry since Motorola's issuance in 1997, underscores the transformative period in technology and capital markets.
Record-Breaking Bond Raise Details
Alphabet's bond issuance includes a diverse portfolio of offerings. The company sold $20 billion in bonds through a seven-part deal on Monday, with maturities ranging from 2029 to 2066. Additionally, it raised 5.5 billion pounds ($7.53 billion) in sterling bonds across five parts, with the 100-year tranche accounting for 1 billion pounds at a 6.125% interest rate. Demand for this century bond was nearly ten times the amount sought, reflecting strong investor appetite. Furthermore, Alphabet secured 3.055 billion Swiss francs ($3.98 billion) via a five-part bond sale with maturities from three to 25 years.
AI Spending Sparks Surge in Tech Borrowing
The bond issuance comes as Alphabet, along with other Big Tech firms like Microsoft, Amazon.com, and Meta Platforms, is projected to spend at least $630 billion this year on capital expenditures. Most of this spending is focused on data centers and AI chips, highlighting the industry's pivot towards long-term infrastructure investments. Jason Granet, chief investment officer at BNY, noted that this issuance is indicative of the significant capital spending and investment flowing into technology markets.
Unique Bond Features and Market Implications
Alphabet's new bonds are notable for their lack of restrictive covenants, which typically protect investors by ensuring debt serviceability through operating income. Analysts at Covenant Review pointed out that while Alphabet may be a low-risk issuer, this sets a concerning market precedent as other tech giants include such protections. The bonds also lack guarantees from subsidiaries and subordination safeguards. Despite these factors, there is solid demand for ultra-long-term bonds from entities like life insurers and pension funds, given the scarcity of long-end corporate bond issuance.
Historical Context and Investor Perspectives
Century bond sales, which grew during the ultra-low interest rate period post-2008, have become rare since central banks raised rates sharply after the COVID-19 pandemic. Lale Akoner, a global market analyst at eToro, remarked that such bonds are usually reserved for governments or utilities with predictable cash flows, indicating investor willingness to take on long-dated risk tied to AI investment. Piers Ronan of Truist Securities added that from an issuer's perspective, the century bond is inexpensive, and for investors, its duration risk is comparable to 30-year bonds, making it an attractive option.
Market Reaction and Future Outlook
Alphabet shares closed down 1.78% on Tuesday, reflecting market dynamics. The broader shift to debt markets by Big Tech has raised investor concerns, as payoffs have not kept pace with massive AI spending, and productivity gains from AI adoption remain limited. This move signals a strategic evolution from asset-light models to investing in durable infrastructure, positioning Alphabet and its peers for sustained growth in the AI era.
