Microsoft, Google, Alphabet accelerate AI capex; bond demand surges

Microsoft and Alphabet are stepping up their AI infrastructure buildout with significant capital markets activity. Alphabet is making its debut yen bond sale in eight tranches, dramatically broadening its funding channels to finance increased capex for AI systems. This signals that management confidence in AI ROI justifies the capital intensity. Similarly, Microsoft is managing through its partnership with OpenAI, which has reportedly capped its revenue-sharing payments at $38B, creating room for Microsoft to fund its own AI expansion more independently.

Broad credit markets are accommodating this capex wave: junk-rated firms are rushing to reprice and refinance US-dollar debt, taking advantage of renewed investor appetite for riskier loans to slash borrowing costs. This suggests that financial markets are pricing in a scenario where AI capex generates sufficient cash flow to service higher debt loads. However, the underlying question is whether AI projects will achieve the promised ROI or whether this is a repeat of prior capex booms that underdelivered.

The AI capex race directly benefits semiconductor makers, datacentre REITs, and hyperscalers themselves. Amazon reported negative $18B free cash flowCash generated after maintenance capex; the actual money the business throws off. in Q1 2026 following $44B in property and equipment purchases, a stunning burn rate. Yet the stock rallied 45% over six months on the belief that growth will eventually justify the spend. Energy providers also benefit from elevated infrastructure build-outs, though margin pressures from high power costs could limit upside for discretionary consumer stocks.

Sceptics argue that the AI capex cycle is top-heavy: only a handful of firms (Microsoft, Google, Meta, Amazon, Tesla) have the balance sheets and access to capital to compete in the arms race, which could entrench incumbent dominance but also create a utilisation cliff if AI project economics deteriorate. The bond market's willingness to finance junk issuers at lower spreads suggests complacency about downside tail risks. A disappointing AI earnings season could rapidly unwind this positioning.