Alphabet has just closed the largest debt transaction in its history: $20 billion in bonds. And it is preparing something even rarer: an issue in pounds that includes a 100 year bond. Expires in 2126.
Why is it important. No major technology company has issued a centenary bond since IBM in 1996. That Google is doing it now says a lot about the scale of investment AI requires. And that this race is financed with wild debt.
The background:
- A bond is borrowed money. The company pays periodic interest and returns the principal at maturity. The routine is terms of 5, 10 or 30 years. The extraordinary thing is to ask for money from a century into the future.
- Investors lined up: demand exceeded 100 billion, five times what Google was asking for. Alphabet planned to raise 15 billion, but raised the offer to 20 billion due to the flood.
Between the lines. A century-year bond is a statement of intent: “we are building infrastructure that will last generations.” Google is thus conveying that AI is not a three-year fad or something that we will forget after the puncture, but something that will transform the economy in the long term like railways or electricity did.
Yes, but. Michael Burry, the investor who anticipated the 2008 crisis, has issued a warning that has gone viral: the last technology company that issued a centenary bond was Motorola in 1997. And according to him, that was “the last year in which Motorola mattered.”
In 1997 it was a top 25 company in the United States, but a year later, Nokia overtook it and then the iPhone, Android, Chinese manufacturers arrived… and now, in the hands of Lenovoit barely fits into the top 10 mobile manufacturers. Burry asks: is this trust or the gesture made right at the top, before everything changes?
The figures. Alphabet’s spending on infrastructure this year may reach, according to figures published by the companyat 185,000 million dollars. More than the previous three years combined. They are data centers, chips, computing capacity for AI…
The five other large companies that have increased their capex (Amazon, Google, Meta, Microsoft and Oracle; Apple has reduced it) issued 121,000 million in bonds last year. Four times more than the annual average for 2020-2024.
Main winner? Google, without a doubt. Issuing very long-term debt locks in favorable interest rates for decades.
- If they go up, Google already has its financing.
- If they go down, you can buy back the debt sooner.
Plus, the interest is deductible, so it’s cheaper than using your own cash. And it does not dilute shareholders. Win-win-win.
What is happening. The era in which technology companies grew solely by turning to their profits is over. The enormous expense required by the infrastructure for AI makes them use financial instruments that until now they had barely needed.
They are no longer software startups. They are the largest infrastructure builders of the 21st century. And they need a lot of capital.
The big question. Is giving bonuses for a century vision or overconfidence? Probably both:
What is certain is that technology companies now compete in the debt markets like banks and large industrial companies. And that defines what our industry has become.
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Featured image | Mitchell Luo
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