Microsoft, Alphabet throw more cash on the AI bonfire Tech companies continue to sling crazy amounts of money at AI, with Microsoft announcing deals worth billions in Texas and the United Arab Emirates (UAE), while Google parent Alphabet is selling bonds in Europe to raise cash for more AI expansion. Microsoft declared on Monday that it will spend more than $7.9 billion on …
One wonders what the risk built into Google's bond price. OK you say Google is too big to go broke. But not big enough to be 'restructured' should or when AI goes pear shaped. They could get dumped into junk bond status.
Hence - not buyin'
They have 30 year USD bonds yielding about 5.25%, that's impressive for a 'tech company'. More in line with what you'd expect from a safe-as-houses utility: https://markets.businessinsider.com/bonds/alphabet_incdl-notes_202525-55-bond-2055-us02079kam99
US Federal 30 year bond is only ~0.6% lower, for context.
Right now they have way more cash than debt - without digging much I'd guess the debt issue is more about acquiring cash in the right jurisdiction and avoiding those pesky repatriation taxes. But like you say things can change, and 30 years is a long time. With high margins and fingers in several big pies pretty much the only thing they can do to seriously jeopardise the company is over-leverage so I'd watch this trend carefully if I were long. I doubt AI itself will damage them much though. Meta pissed away, what was it... USD 15bil? on VR without blinking, and that was a couple years back now. Alphabet could do 10 times that easy.
However I think the biggest losers are going to be those non-tech savvy customers signing long contracts for vague AI services to be delivered by the big tech companies. The public sector particularly.
"I might be being stupid here but are Texas and the UAE really a good choice for compute that needs to cooled?"
Perhaps not, but UAE has a long history of acting to bypass Western sanctions, whether its Western arms to embargoed regimes, machinery to Iran, or aircraft parts to keep Boeing and Airbus jets flying in Russia. So I'm guessing the relevant cooling climate for GPUs shipped to the UAE would be mid-latitudes China.
The players in this game to invest US dollars before they lose purchasing power (against commodities), expect to consolidate huge structures for 'AI' computing, these fed by immense electricity supplies which also will be under their ownership. That is a natural consequence of 'bigger is better' and 'centralisation begets monopolistic powers'.
It is predicated upon businesses happily tapping into external 'AI' supplies instead of commissioning bespoke, and much smaller, 'AI' software and hardware to run locally. Just as most enterprise is entrapped by Microsoft Windows and 'office software', so shall be users of 'AI'. A similar tactic of offering freebies to educational establishments and students will cement dependency.
Even after expectations from 'AI' settle to realistic levels, the major providers of 'AI', these seemingly in cahoots via joint ownerships, will be sitting prettily; at least in the West, for the time being. That's the theory.
On the other hand, this looks set to go 'mammary glands up' along with the US economy (plus knock-on to Europe).
I do not think people are getting all the dimensions of the AI stuff. Yes there is a bubble around and a lot of people will get hurt. But those bubbles are mostly in the unicorn new AI companies rather than the big incumbents. There ar a lot of new AI companies and some ti a even layers on layers that are valeted very high. And a lot of people may get busted. But the incumbents like Google, ME, Amazon , Oracle , etc are playing it safe to keep their monopoly and break the banks of possible disruptive threats. It is the same process that we saw with the advent of Internet and distributed media vs established cable companies. Or traditional media vs Internet or social media. It is all about concentration of power and subduing possible contenders. When you understand why your Internet downloads bandwidth is several magnitudes bigger than your upload that in itself is a statement of power to force one as content consumer. So when these big companies invest that much to make thems lives as AI utilities provider they are actually positioning themselves to be always in the winner side after the slaughter.
Yes, the likes of Nvidia, Google, and MS will survive.
But consider this: in 1999 the poster child of the information superhighway revolution was Cisco. Their share price dropped by 80% in the dot-com crash and took twenty years to recover.
Still want to invest in one of the big incumbents?
This is a race to the bottom for the large players, but at the end of the day anyone can load and run models provided they have hardware. Big companies just do not have any moat here and their margins for renting that hardware will be slim, IMO the winners will be the ones who build useful tools that interact with those models and there is no need to have a lot of cash for that.
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