Alphabet (GOOGL.US) returns to the European bond market: reported plan to raise 3 billion euros. The global financing map expands again under the backdrop of AI expenditures reaching one trillion.

Amid the backdrop of global tech giants betting heavily on artificial intelligence infrastructure, Alphabet Inc. Class C's parent company, Alphabet (GOOGL. US), has once again entered the international bond market. According to sources, Alphabet has launched a plan to sell at least 3 billion euros (approximately $3.5 billion) in six tranches of debt denominated in euros, with maturities ranging from 4 to 37 years. Barclays PLC Sponsored ADR, BNP Paribas, Deutsche Bank Aktiengesellschaft, and HSBC HOLDINGS Limited are arranging this issuance. Alphabet Inc. Class C's massive AI capital requirements Just three months later, Alphabet Inc. Class C's parent company, Alphabet, has once again tapped into the European bond market. This news comes just a few months after Alphabet raised 6.75 billion euros in euros in its first foray into this market, and following Alphabet's announcement on April 29th of an increased 2026 full-year capital expenditure guidance to $180-190 billion, marking a record high for the company and surpassing even the most aggressive expectations of Wall Street analysts. Pricing of the transaction This new euro bond issue includes at least six separate tranches with different maturities. According to sources, the longest tranche of 37-year bonds, due in 2063, is preliminarily priced at around the euro mid-swap rate plus 205 basis points, making it particularly attractive to long-term investors in the current rate environment. As the pricing window opens, Europe is experiencing a key turning point in rate expectations. The European Central Bank has been cutting rates since mid-2025, bringing the benchmark rate down from 4% to 2%, and there is a consensus in the market that rates may be on the verge of plateauing around current levels, with the possibility of a rate hike. Despite a decline from peak levels, Eurozone investment-grade bond yields are still around 3.1%, making them attractive for long-term investors such as European pension and insurance companies. From Alphabet's perspective, the key factor is cost advantage and market depth. Compared to equivalent maturity bonds issued in the US dollar market, euros are more abundant and highly accepted by top credit entities, providing Alphabet with the space to raise large-scale financing even in a narrow margin environment. A source close to the underwriting team revealed that the proceeds of this fundraising will be used for "general corporate purposes, including potentially repaying outstanding debt" - a precise depiction of Alphabet's financial strategy of "pre-funding refinancing," whereby it refinances maturing short-to-medium-term debt at lower rates during high-grade windows and leaves ample buffer space for new phases of capital expenditure. Massive AI spending This euro bond issuance is just one piece of a new puzzle in Alphabet's global financing blueprint. In early February alone, Alphabet completed its largest-ever US dollar bond issue of $20 billion, with subscription orders surging to $103 billion at peak, making it one of the hottest bond offerings in corporate bond market history. The company also successfully "swept" the UK and Switzerland, issuing rare pound-denominated century bonds and Swiss franc-denominated bonds - the first time a tech company has issued such bonds since the late 1990s Internet bubble; the pound-denominated century bond received nearly 10 times oversubscription and carried a coupon rate about 120 basis points higher than a 10-year UK government bond. Behind these intense fundraisings is a capital expenditure bill that is still growing. Alphabet has announced plans to invest as much as $190 billion in capital expenditure this year, exceeding the total expenditure of the past three years, to heavily invest in data centers crucial to its artificial intelligence strategy. A source familiar with the matter revealed that the proceeds from Monday's fundraising will be used for general corporate purposes, including potentially repaying outstanding debt. In the first quarter alone, Alphabet's capital expenditure reached $35.67 billion, a whopping 107% increase year-on-year. This has directly led to a significant decline in free cash flow - Q1's free cash flow plummeted to $10.12 billion, a 47% decrease year-on-year. However, compared to the rapid expansion of debt, Alphabet's fundamental strength is the issuer's and investors' true confidence. Alphabet is able to frequently issue bonds on a large scale with a highly competitive spread, fundamentally supported by its outstanding credit ratings. Moody's Corporation has given Alphabet an Aa2 rating, while S&P has given it an AA+ rating, nearly on par with US sovereign credit. Strong fundamentals, S&P maintains investment-grade rating On May 5th, S&P Global, Inc. assigned Alphabet Inc.'s proposed senior unsecured notes denominated in euros and Canadian dollars a "AA+" issue rating. Alphabet's "AA+" issuer credit rating and stable outlook remain unchanged, reflecting its strong position in online search and video advertising markets, expanding cloud infrastructure provider status, strong technical talent, excellent operating record, and financial flexibility (as of March 31, 2026, the company held $126.8 billion in cash and cash equivalents and marketable securities, and $80.3 billion in debt [excluding the proposed debt issuance]). S&P estimates that the company could increase its net debt by nearly $180 billion (excluding the proposed debt issuance) before reaching the downgrade threshold of 1 times net leverage post-S&P Global, Inc.'s rating adjustment. Alphabet's first-quarter performance in 2026 was robust, driven by accelerated growth in its search business (up 19%) and cloud computing business (up 63%), leading to a 22% increase in overall revenue. S&P believes that the faster revenue growth compared to the first and fourth quarters of 2025 (12% and 18% respectively) indicates that the company's investments in artificial intelligence infrastructure and technology are driving growth in its core business. Alphabet will continue to invest in artificial intelligence and plans to develop and provide full-stack artificial intelligence capabilities that require powerful computing. The company announced a slight increase in its 2026 capital expenditure expectations to a range of $180-190 billion, higher than the previous $175-185 billion estimate, primarily to include investments related to the acquisition of Intersect, which was completed in March 2026. In comparison, the company's capital expenditure in 2025 was $91.5 billion. This growth reflects Alphabet's investment goals in the field of artificial intelligence, namely building technology infrastructure such as servers, data centers, and network equipment to support a growing backlog of cloud business orders (up nearly double from the previous period to over $460 billion). Alphabet also announced that its capital expenditures for 2027 will be significantly higher than those for 2026. The increase in capital expenditure will constrain the company's free operating cash flow (FOCF) in 2026 and 2027, but S&P expects that as its large-scale investments begin to generate returns, its FOCF in 2028 will improve. S&P currently forecasts that Alphabet's leverage ratio post-S&P Global, Inc. rating adjustment will be 0.2x by the end of 2026, rising to 0.3x in 2027. Global tech company bond frenzy: "Supercomputing arms race" driving capital structure reformation Alphabet's move is not an isolated case but rather a corner of a much more spectacular global picture. Just last week, Meta completed a $30 billion bond issuance, as its stock price suffered its largest decline in six months due to market concerns about the potential returns on its artificial intelligence investments. In March, Amazon.com, Inc. raised nearly $54 billion in two tranches in the US and European investment-grade markets, with its 10 billion euro bond issuance in Europe setting a record for Silicon Valley giants. Oracle Corporation also raised $25 billion through a bond issuance in February this year, with a record-breaking oversubscription of $129 billion at the market demand peak. These debt issuances have pushed the annual total capital expenditures of supercomputing cloud companies to a staggering level. The four major cloud service providers including Alphabet, Microsoft Corporation, Meta, and Amazon.com, Inc. (referred to as hyperscale cloud computing companies) are forecasted to have a total capital expenditure of $725 billion in 2026, equivalent to the sum of GDPs of countries like Greece and Portugal. This number has been significantly revised upwards from BofA Securities' initial forecast at the beginning of the year, which in March raised its new debt issuance expectations for hyperscale cloud service providers from $140 billion to $175 billion. Hyperscale cloud computing companies are intensifying bond issuances to fund their large-scale computing construction. Previously, various types of artificial intelligence debt, including project financing bonds and unsecured bonds issued by hyperscale cloud computing companies, have totaled around $300 billion issued, despite investors showing signs of fatigue. Behind this frenzy of bond issuances, there are still doubts in the market about the long-term returns on AI investments. Some investors are concerned that the multi-billion-dollar AI expenditures by tech giants are currently yielding limited returns, and they are closely watching future cash flows and changes in capital structures. Of greater concern is the structural impact that the increasing use of generative AI applications by more consumers may have on the dominant advertising monetization model that Alphabet Inc. Class C has long held. HSBC's Euro-Atlantic credit strategist also pointed out that "it is difficult to predict how the AI ecosystem will evolve in five years, let alone a hundred years." However, at least at the current point in time, the market remains confident in Alphabet's credit status. The subscription orders attracted by its February dollar bond issuance reached over $100 billion at one point, making it one of the hottest bond offerings in corporate bond market history; the pound "century bond" received nearly 10 times oversubscription.