Moody's Ratings says the trillion-dollar-a-year race to build AI infrastructure is eroding free cash flow and raising balance-sheet risk at the largest technology companies. The warning tracks six hyperscalers, and bond investors are already demanding more to lend to them.
Moody's Ratings warned that building artificial intelligence infrastructure at a trillion-dollar annual clip is eroding free cash flow and increasing balance-sheet risk at the so-called hyperscalers. The spending surge is forcing even cash-rich corporations like Alphabet and Microsoft to lean on debt, stock sales and off-balance-sheet moves, the ratings firm said.
The report tracks six companies: Microsoft, Amazon, Alphabet, Meta, Oracle and CoreWeave. Moody's projects capital expenditures will hit $785 billion in 2026 before reaching about $1 trillion next year. Direct debt across the six has reached approximately $460 billion.
Off-balance-sheet leases pile up
To keep debt off their balance sheets, the companies lean on long-term data center leases. Moody's said lease commitments have ballooned to $1.2 trillion, with more than $820 billion tied to leases that haven't started because the data centers are still being built.
Moody's described a shift away from asset-light software models: "The transition from asset-light to asset-heavy models requires unprecedented levels of investment and capital raising."
The pressure lands hardest on companies lower down the credit rating scale. Oracle carries a Baa2 rating with a negative outlook, two notches above junk, while CoreWeave sits in the high-yield market at Ba3.
Bond markets react
That strain is showing up in the bond market. Google, Amazon and Meta are seeing credit spreads widen as fixed-income investors demand more reward to lend, CNBC reported. Yields ticked higher this week after Alphabet lifted its capex forecast, raising concerns that other hyperscalers could follow.
Oracle's five-year credit default swap is again trading at a multi-year high, a proxy some investors use for AI debt fears. Earlier this month, S&P Global downgraded Oracle to BBB-, one notch above junk.
Even so, Moody's noted that Microsoft, Alphabet, Amazon and Meta keep among the strongest balance sheets in the world, making an imminent downgrade of their investment-grade ratings unlikely. The firm still expects investors to press harder on whether that spending pays off.
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