By raising twenty billion dollars on the American bond market, in what constitutes its largest dollar issue to date, Alphabet Inc. has not only struck people’s minds by the scale of the operation, but above all by the duration of this debt. The longest tranche of the issue matures in 2066, i.e. more than forty years, while the group has at the same time announced that it is working on a hundred-year bond issue, an extremely rare operation for a technology company.
This choice reflects a profound shift in the economic model of major tech players, engaged in a race for artificial intelligence whose nature and time horizons break with the sector’s usual investment cycles.
Long debt to finance sustainable assets
Until now Alphabet has stood out for its ability to finance its growth almost exclusively through cash flow. The company was among the major “net savers” in the sector, accumulating cash and short-term investments. The massive recourse to debt, and especially very long debt, therefore marks a significant change in posture, with investments that are not very reversible.
Alphabet announced that it plans up to one hundred and eighty-five billion dollars in capital expenditure this year, an amount greater than all of its cumulative capex over the previous three years. This effort is aimed at the physical infrastructures essential to the development of AI, namely data centers, computing capacities, networks and energy.
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If financing long-lived assets with long-term resources is classic, it is new for a company which usually behaves more like an “asset-light” player, and demonstrates that Alphabet is engaged in investments that are not very reversible.
A signal sent to the markets
The bond issue, structured in several tranches, generated exceptional demand, with more than one hundred billion dollars in orders for twenty billion issued. The tranche maturing in 2066 was placed at a premium of approximately ninety-five basis points above bonds issued by the United States Treasury to finance the United States federal debt. A success for Alphabet which attracts new financial partners through this operation.
The project for a hundred-year bond, envisaged in particular on the British and Swiss markets, goes in the same direction. If it succeeds, it would establish a form of symbolic rapprochement between Alphabet and issuers traditionally associated with infrastructure or essential services.
AI, catalyst for a new capex cycle
This operation takes place while all Bigtech companies have announced an acceleration of their investments linked to AI. Players who will probably finance their infrastructures in the same way, it remains to be seen how the markets react to this new trend. Because through this financing, Alphabet expresses its confidence in remaining, over several decades, a central player in the global digital economy, able to support debt extending until the middle of the century, or even beyond, and that the era of AI is no longer played out only on the terrain of algorithms, but on that of capital, and over the long term.
