Alphabet Issues Rare 100‑Year Sterling Bond to Finance AI Infrastructure Expansion

Alphabet’s recent issuance of a 100-year sterling bond, part of a larger $20 billion multi-currency borrowing spree, has sparked debate among financial strategists. The move, designed to fund the company’s massive capital expenditure on artificial intelligence infrastructure, is being viewed by some as a signal of late-cycle exuberance in credit markets.

This debut sterling issuance, alongside bonds in US dollars and Swiss francs, highlights a growing trend: tech “hyperscalers” are ramping up borrowing to historic levels. Alphabet’s capital expenditure is projected to reach $185 billion this year, driving the need for substantial funding.

Century bonds, maturing in 100 years, are rare, typically favored by governments and large institutional investors like pension funds and insurers seeking to match long-term liabilities. Alphabet’s offering is the first such sale by a technology firm since Motorola in 1997.

The £1 billion ($1.37 billion) bond attracted almost ten times the orders, with a coupon reaching 120 basis points above 10-year gilts. This strong demand underscores investor appetite for exposure to Alphabet’s long-term growth prospects in the AI space.

The company’s multi-currency approach – issuing bonds in dollars, euros, sterling, and potentially Swiss francs – aims to diversify funding sources and avoid over-saturating any single market.

Although, some analysts caution that the deal reflects a potentially overheated market. With credit spreads historically tight and the long-term outlook for AI infrastructure uncertain, the issuance could be a sign of a market “top.”

“The fact that a 100-year bond comes out, you can’t get much more frothy than that,” noted Bill Blain, CEO of Wind Shift Capital. “It does seem a bit like a signal of a top, absolutely.”

The sheer scale of debt being raised by AI-focused companies is also raising eyebrows. Strategists predict total tech debt issuance could reach $3 trillion over the next five years as rivals like Oracle, Amazon, and Microsoft also increase infrastructure spending.

Despite the risks, investors appear confident in Alphabet’s ability to adapt and thrive over the next century. Tatjana Greil Castro, co-head of public markets at Muzinich & Co., suggested the issuance is a bet on the company’s continued reinvention.

“You do take a leap into that company being around to pay interest over the next 100 years. It is very rare… even governments don’t really issue 100-year debt,” she said.

Simon Prior, fund manager at Premier Miton, highlighted the diversification benefits for pension funds, offering exposure to a highly-rated issuer at a long maturity. However, he cautioned that 100-year issuance remains “relatively untested waters,” with buyers locking in yields in a turbulent global environment.

Alphabet’s move is not just about securing funding for AI; it’s about broadening its lender base and diversifying its financial strategy. As the demand for data centers and AI infrastructure continues to grow, other tech companies are likely to follow suit, potentially leading to a surge in long-term corporate debt.

This trend raises questions about the sustainability of such high levels of borrowing and the potential impact on the broader financial markets. Although the current environment is favorable, with low interest rates and strong investor demand, a shift in economic conditions could quickly change the landscape.

What is a 100-year bond?

A 100-year bond is a debt instrument that matures in 100 years, requiring the issuer to pay interest regularly and repay the principal after a century.

Why is Alphabet issuing a 100-year bond?

Alphabet is issuing the bond to fund its significant capital expenditure on artificial intelligence infrastructure and long-term technology investments.

Is this a risky move for Alphabet?

While offering benefits like diversified funding, the long maturity carries added uncertainty due to potential changes in the business landscape over decades.

What does this mean for investors?

Investors are betting on Alphabet’s continued success and ability to generate returns over the next 100 years.