From left: Sundar Pichai, CEO of Alphabet; Satya Nadella, CEO of Microsoft; Andy Jassy, CEO of Amazon; and Mark Zuckerberg, CEO of Meta.
Damian Lemanski | David Ryder | Bloomberg | Getty Images | CNBC | Manuel Orbegozo | Reuters
Moody’s Ratings warned that the race to build trillion-dollar-a-year artificial intelligence infrastructure is eroding free cash flow and increasing balance sheet risk at so-called hyperscalers.
In a research note published this week, Moody’s said the spending surge is forcing even the world’s most cash-rich companies to spend alphabet And Microsoft rely heavily on debt, stock sales and off-balance sheet measures to finance their AI ambitions.
“Historically, these companies relied on asset-light structures that focused on software, intellectual property and scalable cloud services and required modest capital investments,” Moody’s said in Wednesday’s note. “The transition from asset-light to asset-heavy models requires unprecedented investment and capital raising.”
The moves “threaten the credit quality” of the six companies monitored by Moody’s, including Microsoft, AmazonAlphabet, Meta, oracle And CoreWeave, according to the report.
The ratings firm forecasts capital expenditures – or capex, which are investments in physical assets such as data centers – to reach $785 billion in 2026 before reaching about $1 trillion next year.
The change is disrupting a decades-long Silicon Valley formula that has created the world’s most valuable companies. Replicating software is cost-effective and ensures healthy profit margins and solid balance sheets. In contrast, generative AI requires a large physical footprint: warehouses full of expensive and power-hungry servers and chips.
To finance expansion, tech giants are increasingly turning to Wall Street, resulting in booming profits for the financial industry.
According to Moody’s, the six hyperscalers’ direct debt has reached about $460 billion. Tech companies are also tapping public markets for cash, including Google parent Alphabet, which announced an $85 billion stock sale last month.
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Data center leasing
The ratings firm noted that free cash flow is coming under pressure across the sector as AI hardware and infrastructure requires massive upfront investments while revenues are generated over a longer time horizon.
To keep direct debt off their balance sheets, hyperscalers are turning to off-balance sheet financing, usually through long-term data center leases, the report said.
According to Moody’s, leasing obligations across the group have increased to $1.2 trillion. More than $820 billion of that comes from leases that haven’t started yet, meaning the data centers are still being built.
While these obligations are not reported as traditional debt, Moody’s says it views them as debt-equivalent liabilities that will require companies to make significant rent payments down the road.
Despite the warning, Moody’s noted that Microsoft, Alphabet, Amazon and Meta remain among the strongest corporate balance sheets in the world, making it unlikely that their investment-grade ratings are in immediate jeopardy.
The immediate pressure is focused on lower-valued companies such as Oracle and specialist AI cloud provider CoreWeave. Oracle has a Baa2 rating with a negative outlook, just two notches above junk status.
CoreWeave now operates in the high-yield market with a Ba3 rating and relies on complex private debt structures to finance its GPU hardware fleets.
Circular ecosystem
Moody’s also pointed out the structural circularity of the AI boom. Some of the multibillion-dollar backlogs reported by hyperscalers come from pre-IPO strategic deals with artificial intelligence labs, including OpenAI and Anthropic, Moody’s noted.
Companies have invested billions in AI labs, which in turn spend heavily on cloud computing from the same companies, creating what Moody’s calls a circular AI ecosystem.
The overlapping relationships increase risks as many of the industry’s largest companies become increasingly dependent on the same AI customers and the same assumptions about future demand, Moody’s said.
Still, the tech giants have significant strengths that help offset these risks.
Demand for AI computing remains robust, cloud companies continue to grow, and hyperscalers have signed long-term customer contracts worth hundreds of billions of dollars that should provide predictable revenue. These deals support the industry’s broadly strong credit standing, even amid the spending boom.
Still, investors should recognize that the tech industry’s financial profile is undergoing a structural shift unlike any seen in the cloud era, according to Moody’s.
“Investors will increasingly focus on the ability of these companies to generate adequate returns on capital,” the ratings firm said.
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https://www.cnbc.com/2026/07/24/moodys-ai-spending-credit-quality-amazon-meta-alphabet.html
