Bloomberg: Microsoft to return to bond market, seeking $25 bln for AI

Microsoft plans to raise at least $25 billion in the U.S. debt market, Bloomberg reports, citing people familiar with the matter. It would be the company’s first investment-grade bond offering in more than nine years. Proceeds will be used in part for capital expenditures, one of the people said. The deal will test investors’ appetite for financing AI development amid growing doubts about the sustainability of the industry’s massive spending and whether it will pay off, Bloomberg writes.

The final size of the offering has yet to be determined and could change depending on investor demand, the people said. The company is reportedly offering bonds in 10 tranches with maturities ranging from 2 to 40 years. Initial price talk on the longest-dated bonds, due in 2066, calls for a yield premium of as much as 1.35 percentage points over U.S. Treasuries, one of the people said.

Wells Fargo, JPMorgan, and UBS Group are managing the offering. The banks and Microsoft either declined to comment or did not immediately respond to Bloomberg’s requests.

The world’s largest software developer remains one of only two publicly traded U.S. companies with the highest credit rating, AAA, from both Moody’s Ratings and S&P Global Ratings, the other being Johnson & Johnson. Microsoft last tapped the high-grade debt market in 2017, raising $17 billion, Bloomberg notes.

Microsoft is returning to the debt market amid massive investments in AI infrastructure. As the tech giant reported in its earnings release on Wednesday, capex reached $45.2 billion last quarter, below the management’s forecast of $50 billion. Executives attributed the shortfall to project delays rather than changes to underlying spending plans, Reuters reports. The management nevertheless lowered its full-year capex guidance to $170 billion from $175 billion.

Microsoft is joining a wave of tech borrowing that is fueling another round of AI investment. This year, the U.S. has already seen nine investment-grade bond offerings of at least $25 billion each, the most on record, Bloomberg reported in early October. Most were in the tech sector.

Companies financing AI infrastructure, including Oracle, Broadcom, and SpaceX, had raised around $500 billion in new debt by that point, according to Bloomberg data. Meta, for example, sold $25 billion of bonds in April, while Alphabet issued the same amount in August.

The rapid pace and enormous scale of borrowing, combined with uncertainty surrounding the technology and rising interest rates, have increased pressure on the sector. The cost of credit default swaps, instruments that insure against a missed debt payment, has risen in recent months. That suggests market participants see a growing risk that the largest cloud providers and chipmakers could default over the next five years.

“Every new financing announcement feels like another entrant in an auction for investor balance sheet, and that’s creating a level of spread volatility that would have seemed hard to imagine a year ago,” Mark Clegg, senior fixed-income trader at Allspring Global Investments, told Bloomberg. “Some days it feels like the market is holding an emergency meeting every few hours to reprice the size of the AI buildout.”