Alphabet has announced a 100-year bond sale: Why it matters
What's the story
Google's parent company Alphabet is gearing up for its biggest-ever borrowing plan, including an unusual 100-year bond. The move comes as tech giants ramp up capital expenditure to support AI workloads. Initially, Alphabet planned to raise $15 billion through a high-grade US dollar bond sale. However, investor demand exceeded expectations with orders exceeding $100 billion, prompting the company to increase the offering size to $20 billion, its largest-ever US dollar bond deal.
Sale details
Bond sale divided into 7 tranches
The bond sale was divided into seven tranches, giving investors a choice of maturities. The longest is a bond due in 2066. Initially, the bonds were offered at a yield premium of about 1.2% over comparable US Treasuries, but tighter pricing later narrowed that spread to around 0.95% due to strong demand for the debt.
Investment scale
Alphabet's capital expenditure could hit $185B this year
Alphabet has also revealed that its capital expenditure could hit $185 billion this year, more than what the company spent in the last three years combined. This highlights the scale of investment needed to grow data centers, cloud infrastructure, and AI-related capacity. Along with its US dollar bond issuance, Alphabet is also planning bond sales in Swiss francs and British pounds.
Bond rarity
Century bonds are rare in the corporate world
The potential sale of a 100-year bond has drawn interest from investors and market watchers alike. Century bonds are not new, but governments have been their most frequent issuers, especially during low-interest periods. Among corporations, only a few large, established companies like Walt Disney and Coca-Cola have issued such long-term debt instruments in the past.
Investor appeal
Century bonds appeal to institutional investors
Century bonds appeal to certain institutional investors looking for long-duration assets to match the equally long-term liabilities. Pension funds, insurance firms, and university endowments often have investment horizons that extend far beyond those of individual investors. These bonds are generally structured with embedded call options, permitting issuers to repay the debt well before maturity. This feature reduces the likelihood that a century bond will remain outstanding for its full term.
Market impact
Broader borrowing spree across the tech sector
Alphabet's bond sale is part of a broader borrowing spree across the tech sector. Cloud-computing giants known as hyperscalers, are rapidly expanding infrastructure to meet demand for AI services. These companies are expected to invest more than $630 billion this year, largely tied to AI-related buildouts. Bond issuance has become a primary funding channel for this expansion, with Amazon, Google, Meta, Microsoft and Oracle issuing around $121 billion in US corporate bonds last year.