Google-owner Alphabet’s century bond flags new AI arms race debt fears
AlphabetStrategists say the rare 100-year U.S. sterling bond is the latest sign of late-cycle exuberance in credit markets as tech hyperscalers ramp up borrowing to historic levels to finance vast data center and AI infrastructure builds.
The century bond, which marks Google’s owner’s first sterling-denominated issue, is part of a broader multi-tranche, multi-currency debt push totaling $20 billion. The offering covers maturities in dollars, euros and sterling and includes the first bond denominated in Swiss francs.
Century bonds remain rare and are associated with governments rather than corporate borrowers. Demand often comes from large institutional investors, such as pension funds and insurance companies, trying to cover long-term liabilities.
Alphabet joins a small group of issuers of sterling-denominated century bonds, including Oxford University, Wellcome Trust, EDF Energy and the Mexican government.
The 100-year bond attracted nearly 10 times orders for a £1 billion ($1.37 billion) sale on Tuesday, with the coupon reaching 120 basis points above the 10-year gilt, according to a Bloomberg report citing anonymous sources.
‘Beyond historical scale’
Bill Blain, CEO of Wind Shift Capital, said the deal reflected the “unhistoric” levels of debt currently being raised in both public and private markets. Fund AI expansion.
Alphabet said last week that its capital spending is expected to reach $185 billion this year.
“I give them full credit for taking advantage of the opportunity to sell moderately high coupon 100-year bonds,” Blain said in an interview with CNBC. “They clearly identified the demand… This is what the UK insurance and pension funds wanted to meet their liabilities.”
Alphabet.
But given credit spreads are at historically tight levels, long-term data center demand is uncertain and rapid technological change will create winners and losers in the industry, Blain said the deal offers further evidence that the market is bubbling around artificial intelligence.
“The companies that recognized the opportunity and were able to fill it, they recognized the opportunity because there is a bubble there that got people excited about getting involved in it,” he said.
“I think the emergence of a 100-year bond doesn’t get any more frothy than this. If you’re looking for a top signal – even if it’s a clever deal – it certainly looks like a top signal.”
Including competitors Seer, Amazon And Microsoft While it is estimated that the total debt issuance of technology giants will reach 3 trillion dollars in five years, it will also increase infrastructure spending. Strategists say that the century-old bond will also expand Alphabet’s lender base.
“It is interesting that Alphabet is lining up this GBP issuance at the far end of the market to fund its AI equity investments,” said Nachu Chockalingam, head of London credit at Federated Hermes. “They are trying to capitalize on insurance and retirement demand and diversifying funding sources to prevent the US dollar market from becoming oversaturated.”
Tatjana Greil Castro, co-head of public markets at Muzinich & Co., said the issuance is a bet from investors that Alphabet can continue to reinvent itself over the next 100 years and beyond.
“You’re stepping into a company that’s going to be paying interest for the next 100 years. That’s very rare … even governments don’t actually give out 100-year loans,” he told CNBC’s “Squawk Box Asia” on Wednesday.
‘Untested waters’
Simon Prior, fund manager of fixed income funds at Premier Miton, said that unlike EDF and the Mexican government, pension funds would welcome the name diversification offered by a highly rated issuer such as Alphabet in this part of the curve.
“Their introduction of sterling issuance does not indicate an ongoing investment specifically in the UK, but they do offer more diversification in their funding by entering the dollar market the day before and simultaneously issuing Swiss francs,” Prior told CNBC via email.
“I would expect them to hedge their local currencies rather than leaving them accountable with only a small portion of their revenues and profits. [the U.K.]”
However, Prior warned that 100-year issuances remained relatively “untested waters”.
“Buyers will see returns of just over 6 percent in a turbulent global and domestic political environment where technology companies are trading at all-time highs in their stocks despite the ever-evolving nature of the industry,” he said.
Blain added: “The magnitude of AI’s hyperscaler debtfest reminds me of a lot of situations I’ve seen in the past, especially in a market where people take a theme and then follow it to extremes without fully understanding what it is they’re buying.”
He also noted a sharp contrast between corporate debt and government debt, noting that government debt is generally less likely to default due to governments’ ability to print money, while corporate debtors, on the contrary, are subject to similar forces as the equity market, such as missed targets and changes in technology.
