Microsoft Corporation (MSFT.US) returns to the U.S. investment-grade bond market after 9 years, plans to raise $25 billion to ramp up AI investment.

Microsoft Corporation (MSFT.US) is seeking to raise at least $25 billion through its first U.S. investment-grade bond sale in more than nine years, joining a financing rush among competitors to raise funds to support the artificial intelligence (AI) investment boom. According to people familiar with the matter, Microsoft Corporation has not yet finalized the size of the bond offering, and the specific amount may be adjusted based on market demand. The people said Microsoft Corporation will issue up to 10 tranches of bonds with maturities ranging from 2 to 40 years. One of the people added that the longest-dated bonds, maturing in 2066, were initially indicated at a spread of up to 1.35 percentage points above U.S. Treasury yields. Wells Fargo & Company (WFC.US), JPMorgan (JPM.US) and UBS Group AG (UBS.US) are managing the bond sale. The proceeds will be used for general corporate purposes, including capital expenditures, the person said. The transaction will end Microsoft Corporation's long hiatus from the bond market. According to compiled data, Microsoft Corporation is one of only two U.S. listed companies rated AAA by both Moody's Corporation and S&P Global, Inc., with the other being Johnson & Johnson (JNJ.US). Microsoft Corporation last issued high-grade bonds in 2017, when it raised $17 billion. The offering is also the first bond sale by a major U.S. blue-chip hyperscaler since Alphabet (GOOGL.US) priced a $25 billion bond offering on August 6. Against the backdrop of growing market concerns over whether the AI industry's massive spending boom can be sustained, the offering will serve as a key test of investor demand for financing AI investments. Microsoft Corporation's fiscal 2027 first-quarter earnings, released after the U.S. market close on Wednesday, showed quarterly revenue of $92.279 billion, up 19% year over year, faster than the 17% expected by the market; non-GAAP adjusted net income reached $36.422 billion, up 18% year over year; adjusted earnings per share were $4.89, up from $4.13 a year earlier, an increase of 18% year over year. The cloud computing business continued to be an important driver of Microsoft Corporation's growth. In the first fiscal quarter, Microsoft Corporation's Azure revenue reached $33.165 billion, up 48% from $22.384 billion a year earlier, also faster than the 44% expected by the market, reflecting continued expansion of enterprise demand for cloud computing and AI infrastructure. In terms of cash flow, Microsoft Corporation's first-quarter operating cash flow reached $58 billion, up about 29% from $45.057 billion a year earlier. At the same time, the company continued to increase infrastructure investment. Capital expenditure on purchases of property and equipment in the quarter reached $39.367 billion, up about 103% from $19.394 billion a year earlier, but was 14.3% below analysts' expectations and also below the previous quarter's capital spending level of $41 billion. For the AI trade, what excites the market is the combination of "high growth + capital expenditure below expectations." As one of the core indicators of enterprise AI demand, Azure's revenue growth not only beat sell-side expectations but also exceeded some buy-side expectations of nearly 47%; revenue and profit both beat expectations across the board, and an operating margin of nearly 50% shows that AI investment has not yet significantly damaged Microsoft Corporation's profitability; at the same time, cash capital expenditure came in below expectations, interpreted as a better-than-expected return on AI investment, briefly easing market concerns that AI is "only burning money and not monetizing." During the earnings call, Microsoft Corporation executives disclosed that second-quarter Azure revenue will grow 49%-50%, further accelerating, and that full-year calendar 2026 capital expenditure guidance is about $170 billion, slightly below previous expectations.