Alphabet, Google’s parent company, launched a €6 billion bond issue on Monday, serving as a gauge of investor confidence following a period of instability in the technology sector. A memorandum from the lead banks shows strong interest in the issue, with total demand exceeding €17 billion. The issue is divided into seven separate tranches with maturities ranging from two to 19 years, comprising one floating-rate tranche and six fixed-rate tranches.
This is the second time this year that Alphabet has tapped the euro market, following a €9 billion issue in May and a unique issue of 100-year sterling bonds in February. The company plans to use the proceeds for general corporate activities, potentially including the repayment of existing debt. Barclays, Deutsche Bank and BNP Paribas are managing the transaction.
The timing of this bond issue coincides with considerable market unease over the enormous costs associated with artificial intelligence (AI). Investors are questioning whether returns on AI investments justify the huge capital expenditure, which has recently led to a decline in technology shares and bonds. This volatility was exacerbated by lacklustre quarterly results from Amazon and Alphabet. Last Thursday, the latter suffered its largest-ever single-day share price decline, wiping out around $500 billion (€446.4 billion) in market value as a result of sluggish growth in its search business (attributed to declining overall traffic thanks to AI summaries) and high spending.
Financial reports show that Alphabet expects capital expenditure for the full year to reach $205 billion (€183 billion). In addition, the company has committed to $130.5 billion (€116.5 billion) in future lease payments, primarily for data centres, which are currently off its balance sheet. Although Microsoft remained the only major technology company to generate cash flow in the past quarter, experts believe that other giants in the sector will continue to tap liquid European bond markets to finance their infrastructure needs.
Despite a disastrous October, during which Alphabet’s US-listed shares plunged by almost 19%, Alphabet’s share price showed a slight recovery of around 1% in pre-market trading. Meanwhile, its dollar-denominated bond carrying a 4.1% coupon and maturing in 2031 remained stable on Monday, trading at around 95.43 cents.
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