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Big tech groups have embarked on a borrowing spree around the globe to fund the AI arms race as they seek to diversify their sources of funding beyond Wall Street to support runaway capital expenditure.
Google’s parent Alphabet had no foreign debt until last year, but in recent months it has sold the equivalent of more than $40bn in overseas bonds in euros, Swiss francs, British pounds and Canadian dollars.
On Friday, it is expected to wrap up its first-ever yen-denominated bond deal, with US bankers working overnight to pitch investors in Tokyo throughout the week, according to people familiar with the matter.
The global debt binge underscores the drive for Silicon Valley heavyweights to tap new funding sources as their debt load increases.
Big Tech groups have recently increased their estimated AI spending to $725bn this year, leaving them with the lowest level of free cash flow in over a decade.
The so-called hyperscalers, which are building huge data centres to develop sophisticated AI models, were now “exploring all available [currency] options”, said John Servidea, co-head of global investment grade financing at JPMorgan.
Raising debt in foreign currencies allows them to “leave longer intervals between tapping the US market and build some scarcity value”, Servidea said.
The deluge of AI-related debt sales from a range of companies in the US has started to overwhelm investors, who have become more selective and at times have demanded higher yields for deals that they deem more risky.
Alphabet’s decision to borrow in euros and Canadian dollars last week was in part driven by Meta’s recent $25bn bond sale, which depleted investors’ appetite for similar tech borrowers, a person familiar with the decision said. Google declined to comment.
Currencies including Swiss francs and euros offer attractive borrowing costs due to lower policy rates. Some borrowers were also looking into raising debt in Australian and Singaporean dollars, according to bankers.
To limit the cost of currency exchange, “some may consider leaving a portion of the proceeds in local currencies and swap a portion back to dollars”, said Dan Mead, head of investment-grade syndicate at Bank of America.
Foreign currency debt now makes up about 30 per cent of hyperscalers’ overall borrowing, according to Bank of America.
On Tuesday, Amazon followed Alphabet to tap the Swiss market in a bond sale that raised about SFr2.8bn ($3.6bn), weeks after borrowing €14.5bn ($16.9bn) in its largest Eurobond sale to date.
Teddy Hodgson, global co-head of investment grade debt capital markets at Morgan Stanley, said tech groups were moving quickly to establish themselves in foreign markets, which are smaller than the US debt pool, before investors were tapped out.
“It’s not a pleasant position to be in if your peers have already exhausted the capacity for hyperscalers when you want to pivot,” Hodgson said.
In markets such as the UK, tech borrowers can also reap the benefits of securing extremely long-term capital. Alphabet sold a rare 100-year sterling bond in February.
Tech companies prefer bonds with long maturities to avoid frequent refinancings, said Scott Schulte, global co-head of investment grade debt syndicate at Barclays, which underwrote Alphabet’s century bond.
“They are arguably the modern-day railroad,” Schulte said. “It makes sense for them to issue longer maturities because AI is a long-term infrastructure.”
Additional reporting by Stephen Morris in San Francisco
