Alphabet’s euro bond offering sees strong demand despite AI debt concerns

Alphabet Inc. is moving ahead with its largest-ever euro-denominated bond sale, attracting strong investor demand as it ramps up funding for artificial intelligence (AI) investments.

The company has received more than €25.2 billion in orders for a planned debt sale of at least €9 billion.

The offering is expected to be split into six parts and could range between €9 billion and €9.5 billion, mentioned in Bloomberg report.

The transaction marks Alphabet’s biggest issuance in euros to date.

It comes just months after the company raised nearly $32 billion through bond sales in US dollars, sterling, and Swiss francs.

AI spending drives capital needs

Alphabet’s latest fundraising effort comes as it significantly increases spending on artificial intelligence infrastructure.

The company said last week that it plans capital expenditures of up to $190 billion this year, primarily focused on data centres essential for its AI strategy.

Proceeds from the euro bond offering, along with any concurrent issuances, will be used for general corporate purposes.

In addition to the euro bonds, Alphabet is also preparing to issue Canadian dollar-denominated debt.

S&P Global Ratings has assigned an AA+ rating to the proposed euro and Canadian dollar bonds.

Hyperscalers ramp up borrowing

Alphabet is part of a group of major technology firms increasing investments in AI.

Alongside Meta Platforms Inc., Microsoft Corp, and Amazon.com Inc., the company is expected to spend as much as $725 billion this year on AI-related infrastructure and capital.

“These companies are going to become a bigger and bigger part of the bond market, just like they did in the equity market,” Ian Horn, portfolio manager at Muzinich & Co Ltd, said, as reported by Bloomberg.

Previous deals highlight strong demand

Earlier this year, Alphabet completed its largest-ever US dollar bond sale, raising $20 billion.

Demand for that deal exceeded expectations, with peak orders reaching over $100 billion.

The company also tapped other markets, including Swiss franc and sterling bonds, and even issued 100-year bonds a rare move for a technology firm.

Signs of investor fatigue emerge

Despite continued demand, there are indications that investors are becoming more selective as AI-related debt issuance rises.

Around $300 billion in AI-linked debt has already been issued, raising concerns about market absorption.

Meta recently priced a $25 billion bond sale, but the deal came with higher risk premiums compared to its earlier issuance.

Orders were also lower, signalling a shift in investor sentiment.

“There are concerns about how the bond issuance will be absorbed by the market and you’re getting paid for that, but it’s not reflective necessarily of the credit fundamentals,” Horn said, as reported by Bloomberg.

Pricing and deal structure

Alphabet’s new euro bonds are being marketed with an average new-issue premium of around 40 basis points per tranche compared to its existing debt.

The deal is expected to be priced later on Tuesday.

It is being arranged by Barclays Plc, BNP Paribas SA, Deutsche Bank AG, and HSBC Holdings Plc.