Amazon acquires $17.5 billion in new debt, bringing its total borrowing to over $225 billion due to increased investment in AI.

      Amazon has secured a $17.5 billion delayed-draw term loan led by Citigroup, which is part of a broader borrowing trend aimed at enhancing its AI infrastructure. The funds will be accessible until the end of September, with each withdrawal having a three-year repayment period. More than a dozen banks, including JPMorgan Chase, Bank of America, HSBC, and Wells Fargo, are part of the syndicate.

      This loan follows Amazon's recent C$14 billion ($10 billion) bond sale in Canadian dollars, marking the largest corporate bond issuance to date in that currency. Since March, the company has also issued bonds in euros, US dollars, and Swiss francs. As of March 31, Amazon's total short- and long-term debt, inclusive of lease obligations, surpassed $225 billion, up from nearly $150 billion a year prior.

      Amazon stated that the loan will support various corporate needs, potentially including funding business investments, future capital expenditures, and debt repayment. Analysts at CreditSights noted that the loan could aid in financing Amazon's equity stakes in AI firms. Earlier this year, Amazon pledged up to $50 billion in cash to OpenAI, starting with $15 billion contingent on future conditions like an initial public offering. It also invested $10 billion in Anthropic this year, with potential for an additional $15 billion later on.

      The company plans to allocate around $200 billion for capital expenditures by 2026, primarily for new data centers and chips. In the first quarter alone, spending reached $43.2 billion, the highest among major tech firms. CreditSights has also indicated that Amazon could pursue an equity offering in the future, following Alphabet's significant $84.75 billion issuance last week.

      The interest rate on the unsecured loan ranges from 0.625 to 0.875 percentage points over SOFR, depending on Amazon’s credit rating, which reflects favorable borrowing conditions and market confidence in Amazon’s capacity to manage the debt. However, the rate of debt accumulation stands out, with a 50% rise in total debt in just one year being noteworthy, even for a company of Amazon's size.

      Amazon is part of a larger trend, as major tech companies are aggressively borrowing in global debt markets to finance AI developments. Analysts are beginning to question whether the anticipated returns from AI investments will come quickly enough to justify such leverage. Currently, the market is willing to lend, but future lending will hinge on whether the projected $200 billion in capital expenditures translates into revenue growth that matches the growing debt.