Unprecedented in history! Tech giants shake up the market! Targeting AI dominance!

Google Moves Again in the Race for AI Dominance!

According to the latest news, tech giant Google’s parent company Alphabet plans to issue a very rare century-long bond. This will be the first time since the late 1990s that a tech company has issued such ultra-long-term debt.

Currently, Alphabet is raising funds for its unprecedented spending plans behind its artificial intelligence ambitions. On Monday, Alphabet conducted its largest-ever dollar bond issuance, raising $20 billion, surpassing the initial expectation of $15 billion. Last week, Alphabet announced that its capital expenditures this year will total up to $185 billion.

Issuance of Century Bonds

According to Bloomberg, Alphabet plans to sell a very rare century bond as part of its massive debt issuance. This will be the first time since the late 1990s that a tech company has issued such ultra-long-term bonds.

The report states that an insider revealed this century bond will be denominated in pounds, along with four other tranches also in pounds. This transaction marks Alphabet’s first issuance of bonds in GBP, with pricing possibly as early as Tuesday.

Based on Bloomberg data, this is the first time since Motorola issued similar bonds in 1997 that a tech company has issued such an extreme maturity bond. The century bond market is mainly dominated by governments and institutions like universities. For companies, potential acquisitions, outdated business models, and technological obsolescence make such transactions extremely rare.

Nevertheless, considering the massive capital needed for tech companies to stay ahead in the AI race, even such rare transactions are re-emerging.

Gordon Kerr, a macro strategist at KBRA Europe, said, “They aim to reach a wide range of investors, from structural financing investors to ultra-long-term investors.” The main buyers of century bonds will be insurance companies and pension funds, and “the underwriters of these bonds are likely not to wait until maturity to get their payout.” Kerr added, “It’s hard to say whether this will become normal. Even in the government bond market, this practice isn’t truly widespread.”

The report notes that strong demand from UK pension funds and insurance companies has made the GBP market the preferred venue for issuers seeking long-term financing. However, according to Bloomberg data, apart from government issuers, only Electricite de France SA, Oxford University, and the Wellcome Trust Ltd have issued century bonds in this currency market. All these bonds were issued in 2021, when GBP high-grade yields fell to record lows. Due to their extremely long duration (price sensitivity to interest rate changes), these bonds traded well below face value.

Bloomberg data shows that the bond with the lowest coupon, the Wellcome Trust bond, has an indicated price of 44.6 pence per pound. Bond prices move inversely to yields. Not all ultra-long bonds survive; for example, retailer J.C. Penney Co. filed for bankruptcy in 2020, just 23 years after issuing a century bond.

Just Recently, US Bond Issuance Raises $20 Billion

Currently, Alphabet is extensively borrowing to fund its unprecedented AI ambitions. Its century bond plan is synchronized with multiple dollar bond issuances.

On Monday, Alphabet conducted its largest-ever dollar bond issuance, raising $20 billion—exceeding the initial $15 billion target—and setting one of the largest order books ever.

This massive borrowing coincides with other tech giants like Meta and Amazon announcing increased spending to realize their ambitious AI plans. These plans have sparked concerns about an AI arms race and the potential pressure on credit markets from billions of dollars in debt needed to support this competition. However, investors seemed to dismiss these worries on Monday, as Alphabet’s bond issuance attracted over $100 billion in orders.

Andrew Dassori, CIO of Wavelength Capital Management LLC, said, “Clearly, we are not in a typical capital expenditure cycle. These companies have traditionally been net savers, but now they are delving into the capital markets to secure the resources needed for competition. This is a significant shift, especially when considering the potential risks and returns of US corporate bonds.”

Last week, Alphabet announced plans to spend up to $185 billion this year—more than the total of the past three years—mainly on data centers critical to its AI ambitions. The company states that these investments are already boosting revenue, as AI drives more online searches.

As other mega-corporations also ramp up spending, US tech giants’ capital expenditures are expected to reach about $650 billion by 2026. This will fuel a financing boom and could lead to a disruptive, transformative technology that may reshape the global economy. A significant portion of this spending is being raised through bonds. Just last week, Oracle issued $25 billion in bonds, with a peak order volume of $129 billion.

Morgan Stanley forecasts that mega-corporations will borrow $400 billion this year, up from $165 billion in 2025. In a Monday report, Morgan Stanley’s US credit strategist Vishwas Patkar wrote that this issuance wave could push high-grade bond issuance to a record $2.25 trillion this year. Some credit strategists, including Patkar and J.P. Morgan’s Nathaniel Rosenbaum, expect that the large issuance volume will widen corporate bond spreads.

Bloomberg Intelligence estimates that by 2029, capital expenditures on AI, cloud infrastructure, and data centers will total around $3 trillion.

Barclays states that pent-up M&A demand and companies refinancing existing debt are expected to boost overall corporate bond issuance this year, but the primary driver remains the borrowing needs for AI-related investments.