Moody's says 'unprecedented' AI spending threatens credit quality of Amazon, Meta, Alphabet and others

Moody's Ratings warned that the race to build artificial intelligence infrastructure is eroding the free cash flow and increasing balance-sheet risk at hyperscalers like Alphabet and Microsoft. In a research note released this week, Moody's highlighted that the spending surge is forcing companies to lean heavily on debt, stock sales, and off-balance-sheet moves to fund their AI ambitions. The ratings firm projects that capital expenditures will hit $785 billion in 2026 before reaching about $1 trillion next year. To finance the expansion, tech giants are increasingly turning to Wall Street, with direct debt across six hyperscalers reaching approximately $460 billion. Tech companies are also tapping public markets for cash, including Google-parent Alphabet, which last month announced an $85 billion equity sale. Moody's noted that because AI hardware and infrastructure require massive up-front investment while revenue materializes over a longer time horizon, free cash flow across the sector is coming under pressure. To keep direct debt off their balance sheets, hyperscalers are leaning on off-balance-sheet financing, mostly through long-term data center leases, with lease commitments across the group ballooning to $1.2 trillion. Despite the warning, Moody's noted that Microsoft, Alphabet, Amazon, and Meta retain among the strongest corporate balance sheets in the world, making it unlikely that their investment grade ratings are under imminent threat. The immediate pressure is concentrated on lower-rated entities like Oracle and specialized AI cloud provider CoreWeave.