Big Tech's debt linked to AI reaches $350 billion and moves towards Europe.
Big Tech established its reputation through substantial amounts of cash. It is now constructing its AI dominance on debt, and the repercussions are beginning to surface in Europe.
The five largest developers of AI data centers in the United States have seen their debt double over the past five years. Collectively, Alphabet, Amazon, Meta, Microsoft, and Oracle have accumulated approximately $350 billion in debt, according to data from Bloomberg. They are banking on the idea that advanced AI will eventually generate enough returns to repay this debt.
Currently, the interest payments are relatively insignificant. Last year, the five companies collectively paid $10 billion in interest, which is more than twice the amount from 2019, but negligible compared to Google’s cash flow of around $64 billion in the last quarter. These companies remain among the most profitable in the world.
However, signs of strain are becoming evident. Amazon experienced negative free cash flow in the March quarter. Oracle's debt has reached about 2.5 times its revenue, prompting S&P to downgrade its rating to just above junk status due to AI spending.
The market is beginning to react cautiously. Investors have previously been eager to purchase bonds, but this trend may be shifting. Amazon's $25 billion bond sale this week received a notably lukewarm response, marking the weakest hyperscaler launch since Meta's offering last October. Traders are offloading older tech bonds from Amazon, Nvidia, and Oracle to accommodate the influx of new offerings.
The buyers are running out of capacity rather than confidence. Nonetheless, warning indicators are increasing. “Credit risk is currently undervalued in the market,” commented Vishal Khanduja from Morgan Stanley on Bloomberg TV.
Why this matters for Europe
This is particularly relevant across the Atlantic. American tech companies are facing a scarcity of dollars to borrow and are turning to Europe instead. Hyperscalers did not issue any non-dollar bonds in 2024, and by 2026, this will become a fundamental aspect of their financing.
Morgan Stanley predicts their borrowing in euros will reach €50 billion this year, as reported by TechFundingNews. This would position US Big Tech as the largest contributor to corporate debt in the eurozone, surpassing France. Over the past year, Alphabet has borrowed in yen, Canadian dollars, Swiss francs, and sterling, even issuing a 100-year bond.
When American giants compete for the same euro-denominated debt relied upon by European startups and infrastructure funds, the cost of borrowing will be impacted here as well. A startup in Munich or Paris, with no ties to AI, might find itself paying higher costs simply because Amazon secured funding first.
The Intel warning
Not everyone shares concerns about the situation. Amazon CEO Andy Jassy expresses high confidence that these investments will be monetized. Mark Zuckerberg asserts that the demand for computing resources continues to outstrip supply. DA Davidson’s Gil Luria believes the current debt load appears manageable, stating, “If they were borrowing significantly more? That would be concerning.”
Others are more skeptical. “It appears to be a lot of demand hype that is quite aspirational at this stage,” remarked Jason Pompeii of Fitch. A cautionary example can be found in Intel, which heavily invested in debt, missed the AI chip boom, and required both a US government bailout and investment from Nvidia to stay afloat.
Why this is significant
The expansion of AI has quietly evolved into one of the largest debt gambles in corporate history, with one research firm estimating that the AI debt market could reach $7 trillion by 2029. Only Alphabet’s stock has outperformed the market this year, while Microsoft and Oracle have both experienced declines of over 20%.
The share buybacks that previously defined these companies have nearly ceased. The stakes are no longer limited to whether AI technology will be successful; it now includes whether revenue will materialize before the debt becomes due, reflecting the bubble warnings and inflated valuations that are currently affecting the sector. This same risk is driving Nvidia’s bond sales and ByteDance’s borrowing.
Europe has now become a crucial stage for this risk to be resolved.
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Big Tech's debt linked to AI reaches $350 billion and moves towards Europe.
Alphabet, Amazon, Meta, Microsoft, and Oracle have increased their debt to $350 billion in order to develop AI, and they are now entering European bond markets, particularly ahead of France.