Alphabet's Bond Sale Signals AI Confidence

**SPEAKER_1** (0:02)
Bloomberg Audio Studios. Podcasts, radio, news.
Bloomberg Tech is live from the heart of Silicon Valley with Ed Ludlow in San Francisco.

**Ed Ludlow** (0:22)
This is Bloomberg Tech. Coming up, another mega bond sale alphabet looking to raise as much as $25 billion from its latest offering. A deal that will test investor appetite for AI related debt. Plus a rough day for Western Digital or WD. The storage giant slides after a disappointing outlook, despite the broader AI infrastructure boom. And Sequoia's leaders, Alfred Lin and Pat Grady, join us on the future of the storied venture capital firm. It is a debt day. That's what we're talking about. Today's big number, $89.5 billion.
That's how much alphabet debt has been sold globally since 2025 Looking at shares of Alphabet, the Google parent in the equity market, the stock is flat, but had been under some pressure in the last 24 hours about a wave of departures. We'll bring you that story later on. I want to zero in on AI debt and get more on Alphabet with Robert Schiffman, Bloomberg Intelligence Senior Credit Analyst. This is a $25 billion denominated offering, 10 parts, right? But it's the latest in a sequence of bond market activity. You write, borrowing fears, question mark.
Answer your question mark.

**Robert Schiffman** (1:39)
Yeah, the answer right now is no.
I think the second quarter prints that we saw for the biggest hyperscalers actually proved to people that all the money that they're spending is being monetized, and the confidence levels have improved. You're seeing that with share prices, and you're seeing that with bond prices. The demand for this deal, I think is going to be substantial. What we heard already was that the books were at $65 billion. I think they're only going to issue $25 billion, so not raising it is positive. Obviously, their cost of capital is going up a little bit. But after increasing their capex guidance by $20 billion, just a week or so ago, this shouldn't be a surprise to anybody. And quite frankly, I think they're actually front-running a lot of next year's borrowing.
And this might actually help technicals going into 2027 versus hurt them.

**Ed Ludlow** (2:27)
On a US dollar basis, Alphabet, it's at $42.5 billion since 25 Amazon, $77 billion.
You have done a really good job, Schiff, of explaining to the Bloomberg Tech audience why it's different in the here and now to say the dot-com bubble, the financial crisis, what do the balance sheets of these companies and their top line growth outlooks differ from that period in history?

**Robert Schiffman** (2:54)
Well, these are real businesses that are generating cash, that are just spending more money these days to make more cash down the line. We're starting out with a tremendous amount of balance sheet flexibility. Alphabet traded AA plus at S&P. They're one notch away from the highest potential rating that you can have.
The rater said this morning they have $200 billion of net debt capacity within their current ratings. That means just to fall a notch to mid AA, they would have to issue another $200 billion of debt and spend it. I think the flexibility that you see from, we've said it time and time again, these Mount Rushmore of credits enables them to borrow as much as they want. The concerns that people have been having that they're not going to be able to fund themselves as CapEx budgets go up by 50 or 100 percent next year, it's just not true. They can borrow, they can raise the money, the demand is there, the balance sheet flexibility is there, and people are now getting paid for it versus two or three years ago, when you got basically no spread to own any of these names.

**Ed Ludlow** (4:00)
Robert Schiffman, Bloomberg Intelligence Senior Credit Analyst. Thank you very much. I mentioned the new story for Google, which is Google is undergoing its biggest AI leadership shake up in years. Longtime AI executive Jeff Dean is leaving to launch a start up with several senior DeepMind researchers while DeepMind CEO Demis Hesabis is stepping back from day to day operations to become chairman of DeepMind, but also Alphabet's chief scientist. The changes come as Google faces mounting pressure to keep pace in the AI race with investors basically questioning whether the company can retain top talent and turn its AI research into commercial success. That was the stock story of yesterday.
Let's stick with Alphabet. Joining us is Natalie Gallagher, principal economist and director at Board. I want to go very briefly back to Alphabet going back to the bond market. What does that signal about where we are in a capex cycle?