AI Bond Binge Overwhelms Wall Street, Pushing Alphabet Overseas

(Bloomberg) — Bankers were still putting the final touches on Alphabet Inc.’s blockbuster $17 billion of bond sales when word started to spread Monday morning on Wall Street: the company is already hawking more debt.

This time, it was in yen. Alphabet’s executives had stayed up through the night to get on with Tokyo investors and pitch the deal. The week prior it had been in euros and Canadian dollars, and, a few months before that, dollars, pounds and Swiss francs. In all, Alphabet will have raised close to $60 billion by the time the yen sale is finalized, a four-month run that ranks as one of the greatest corporate borrowing binges ever.

Both the sheer scale of the fundraising — quadruple the amount of bonds Alphabet had sold in its first 26 years in business — and the span-the-globe approach it took to pull it off has put the tech giant at the forefront of a race to fund an artificial intelligence buildout expected to cost nearly $5 trillion by the end of 2030. All told, tech companies have already sold more than $300 billion of debt to US investors to fund AI spending.

And Wall Street bankers say they will, one by one, follow Alphabet’s lead and tap overseas markets because they can’t depend on America alone to finance those sorts of ambitions — not without overwhelming demand and sending funding costs sharply higher. Some signs of stress are already emerging. While tech stocks keep soaring — lifting benchmark equity indexes — returns on their debt have been lagging those generated by the investment-grade market as a whole.

“The reality is that there’s so much need for depth, they have to tap every single source of liquidity that they can,” said Nanda Kamat, global head of project finance at Royal Bank of Canada, which helped lead Alphabet’s C$8.5 billion ($6.2 billion) bond sale last week, the country’s biggest ever.

For overseas bond markets, the deals could prove disruptive, too. As hyperscalers fan out across the globe in search of funding, some analysts and investors are warning that the coming wave of issuance into foreign-currency markets risks crowding out local companies that have spent decades relying on relatively steady access to funding at home.

“All this AI issuance makes you wonder at what point there are just too many bonds,” said Jim Fitzpatrick, head of US investment-grade research at Allspring Global Investments. “No one wants to do that one deal that goes badly.”

That need to tap global liquidity has been on full display in Alphabet’s yen deal this week. Bankers have worked around the clock to execute the unprecedented eight-part sale.

Debt capital markets desks and the company’s finance team were up as early as 3 a.m. in the US to launch into the Japanese market Monday, kicking off a multiday process in which order books are handed from Tokyo to London to New York and back again, according to a person with knowledge of the transaction.

The deal, which could close as soon as Friday, marks Alphabet’s fourth bond sale in a new currency this year alone, and its sixth overall. Depending on the final size, the company could eclipse Anheuser-Busch InBev for the largest global corporate borrowing spree ever over a half-year span.

And Alphabet, the parent company of Google, has overnight become a dominant player in several foreign debt markets.

Its pile of euro-denominated debt — now at about €22 billion ($26 billion) — ranks as the eighth-largest among non-financial issuers, putting it ahead of mainstays including BMW AG and Mercedes-Benz Group AG. By week’s end it could be the second-biggest corporate issuer in Japan.

Earlier this week Amazon.com Inc. raised more than $3 billion in its first-ever Swiss franc deal, making it the market’s sixth-largest issuer.

A representative for Alphabet declined to comment on the company’s future financing plans, while an Amazon spokesperson said the company regularly evaluates its operating plans and makes financing decisions accordingly.

Bankers say they’re pushing tech executives to look abroad for funding in part to avoid a glut in the US market. Nearly 40% of high-grade US corporate bond sales this year have come from tech companies including hyperscalers, according to a Barclays Plc analysis of issuance excluding the financial industry. If that proportion holds for the year, it would be a record share.

Historically, that kind of rapid growth has worked out poorly for investors. Tech companies, for example, went through another growth period from 2015 through 2017, and lagged non-financials by about 0.16 percentage point over that time, according to Barclays strategists.

Pursuing a diverse mix of currencies helps maintain “scarcity value in the US market,” said John Servidea, global co-head of investment-grade financing at JPMorgan Chase & Co., which has helped lead bond sales for both Alphabet and Amazon this year.

Still, the rapid rise in overseas issuance is already raising questions about how much these markets can absorb. Historically, multinational bond sales across several currencies were typically one-time financings tied to major acquisitions. Now, companies are poised to return to foreign-currency markets repeatedly as AI spending accelerates, creating what investors expect will be a steady pipeline of new debt supply.

“There’s some uncertainty at the moment in terms of the degree of supply that’s coming to market and how that will be digested,” said Rory Sandilands, a portfolio manager at Aegon Asset Management.

One concern is that the surge of new issuance could start weighing on bonds already trading in the market, particularly if investors begin demanding bigger concessions to absorb the supply.

“The worry is always, is there another deal around the corner,” said Stuart Chilvers, a fund manager at Rathbones. “If you have one of them come to market shortly after the other’s just come, it’s not that surprising if you see them drag the existing deal wider.”

Most observers say that, for now at least, there’s ample demand among investors for more deals, particularly because hyperscalers still make up only a sliver of major bond indexes. In euro, sterling and Swiss franc credit benchmarks tracked by Bloomberg, tech accounts for less than 5% of the market, for example.

It may be only a matter of time before Alphabet, Amazon and others push even further afield in search of financing, with Australia and Taiwan viewed as potential sources of capital. Bankers say there are advantages to moving early: companies that establish themselves in smaller, niche currency markets first can lock in investor relationships and funding access, while latecomers risk finding those markets already crowded by rivals.

“There’s a bit of game theory to this,” said Teddy Hodgson, global co-head of investment-grade debt capital markets at Morgan Stanley, which is helping lead Alphabet’s yen-denominated deal. “None of these names have exhausted the US market,” he added, but “if you just stick to US dollars, you might saturate that market, and by then, your peers will have built a durable and diverse funding profile globally.”

–With assistance from Dan Wilchins, Yue Qiu, Michael Gambale, Ronan Martin, Chunzi Xu, Takahiko Hyuga, Issei Hazama and Michelle Cheng.

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