Alphabet highlights new AI-related risks in tapping debt market

Like Alphabet The company, which has turned to the debt market to finance AI development, acknowledges new risks tied to the rise of AI and its massive investments in infrastructure.

in it annual financial report Late last week, Google’s parent company highlighted the potential impact of AI on the company’s core advertising business and the possibility that it could result in “excess capacity” due to its costly commitments.

“To meet the computing capacity demands of traditional cloud computing services as well as artificial intelligence training and inference, we enter into significant leasing agreements with third-party operators that may increase costs and operational complexity,” the company stated in its filing with the SEC. Alphabet said large business deals can also increase “liabilities and liabilities if we, our counterparties, or our vendors fail to meet their obligations.”

One of the headline numbers in Alphabet’s earnings report was $185 billion; This represents the high end of what the company can achieve from capital expenditures this year; This figure is more than double the 2025 capital.

Alphabet plans to raise $20 billion from a US dollar bond sale to help finance its AI ambitions, according to people familiar with the matter who asked not to be named because the details are confidential. Sources said the planned sale would take place in four tranches, including a sterling-denominated 100-year bond deal; The deal was five times oversubscribed, one person added.

Bloomberg ranks first reported About the planned debt financing, which was initially expected to reach $15 billion.

Alphabet organized a $25 billion bond sale In November. Its long-term debt quadruples to $46.5 billion in 2025. “We want to make sure that we’re doing this in a fiscally responsible way and investing appropriately, but we’re doing it in a way that maintains a very healthy financial position for the organization,” CFO Anat Ashkenazi said on last week’s earnings, assessing the company’s total investment.

When asked on the call what’s keeping executives up at night, CEO Sundar Pichai said “computing capacity,” adding: “Power, land, supply chain constraints, how do you ramp up to meet this extraordinary demand right now?”

Alphabet in total, Microsoft, Meta And Amazon They are expected to increase capital expenditures this year by more than 60% from historical levels reached in 2025 as they load up on high-priced chips, build new facilities and buy network technology to connect it all.

At the center of Google’s AI strategy is Gemini, its broad language model and AI assistant that competes head-to-head with OpenAI’s offerings and Anthropic’s Claude.

Pichai said in the earnings call that the Gemini AI app currently has more than 750 million monthly active users, compared to 650 million monthly active users last quarter.

As more consumers embrace generative AI, Google is forced to confront the potential for people to reduce their use of internet search; This means possible changes to the company’s dominant advertising business. This is another thing that Google has included in the risk sections of its financial filings for the first time.

“We and our competitors are constantly adapting to accommodate this change and provide new and evolving advertising formats,” the filing states. “There is no guarantee that we will be able to effectively and competitively adapt to this change and that such advertising formats, strategies and offerings will be successful.”

So far, Google has managed to fend off concerns that AI would undermine its search and advertising business. In the fourth quarter, advertising revenue increased by 13.5% compared to the previous year, reaching $82.28 billion.

— CNBC’s Seema Mody contributed to this report.

WRISTWATCH: Frankly speaking, Google is getting very good returns on its investment spending.