Amazon incurs an additional $17.5 billion in debt as its AI investments drive total borrowing to exceed $225 billion.

      Amazon has secured a $17.5 billion delayed-draw term loan from Citigroup, marking another step in its borrowing spree aimed at developing AI infrastructure. The funds will be accessible until the end of September, with each draw having a repayment period of three years. The syndicate of lenders includes major banks such as JPMorgan Chase, Bank of America, HSBC, and Wells Fargo.

      This loan follows Amazon's recent sale of C$14 billion ($10 billion) in Canadian dollar bonds, which set a record for the largest corporate bond issue 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 indebtedness, including lease obligations, exceeded $225 billion, a substantial increase from approximately $150 billion the previous year.

      According to Amazon, the loan is intended for general corporate purposes, which may encompass “supporting business investments, funding future capital expenditures, and repaying debt.” Analysts from CreditSights noted that these funds could facilitate Amazon's equity investments in AI firms. In February, Amazon pledged up to $50 billion to OpenAI, beginning with an initial $15 billion, with further amounts conditional on factors such as a public offering. Additionally, this year, the company invested $10 billion in Anthropic, with the potential for another $15 billion in the future.

      The company plans to allocate around $200 billion in capital expenditures by 2026, focusing primarily on new data centers and chips. In the first quarter, spending reached $43.2 billion, the highest among major tech companies. CreditSights has also suggested that Amazon might consider a future equity sale, following Alphabet’s recent $84.75 billion offering.

      The interest on the unsecured loan is set between 0.625 to 0.875 percentage points above SOFR, contingent upon Amazon's credit rating. This is considered inexpensive debt and reflects the market's confidence in Amazon's ability to manage the obligation. However, the rapid accumulation of debt is noteworthy, given that a 50% increase in total debt over a year is significant, even for a giant like Amazon.

      Amazon is not acting alone; major technology firms are heavily borrowing in global debt markets to support AI initiatives. Analysts are beginning to question whether the returns on AI investments will be swift enough to justify the incurred debt. Currently, the market is lending generously, but the continuation of this trend hinges on whether the planned $200 billion in capital expenditures translates into revenue growth that matches the debt levels.