Alphabet 100-year bond falls below 90 pence on AI spending fears

Alphabet Inc.'s 100-year sterling bond dropped below 90 pence on the pound for the first time since its February issuance, as investor concern over the company's surging artificial intelligence capital expenditure drove credit spreads to a record.

"The widening of hyperscaler bond spreads has reignited debate about the sustainability of their business models, particularly given the scale of their capital spending," Michael Teig, credit strategist at UniCredit, said in a note Thursday.

The £1 billion ($1.34 billion) bond due in 2126 was indicated at 89.978 pence, with its risk premium over risk-free benchmark rates hitting 139.8 basis points, according to data compiled by Bloomberg. The bond, the longest-duration benchmark-grade senior corporate bond outstanding globally, is acutely sensitive to interest rate changes — each percentage point rise in yields can theoretically erase about 15 pence of its price.

The decline comes as Alphabet and other hyperscale cloud providers face mounting scrutiny over their spending plans. Alphabet raised its 2026 capital expenditure guidance to between $195 billion and $205 billion in its second-quarter earnings report this week, up from the $180 billion to $190 billion range offered in April. Executives reaffirmed that capex would "increase significantly" in 2027. The company's future spending commitments have swelled to $811 billion, while quarterly free cash flow has turned negative.

Amazon.com Inc.'s long-duration bonds also underperformed in European investment-grade markets Thursday, reflecting a broader reassessment of credit risk among big technology companies. The selloff in ultra-long corporate debt coincides with rising government bond yields globally, as traders price in persistent inflation and widening fiscal deficits.

This article is for informational purposes only and does not constitute investment advice.