Microsoft to raise up to $25 billion in bond market as investors get pickier about AI debt binge

By Joy Wiltermuth and Hannah Pedone

What's changed since the summer is which companies investors want to back in the AI race - and at what level

Microsoft shows that the AI funding race is rewarding the strongest players.

The big artificial-intelligence borrowing binge is back on.

Microsoft (MSFT) hit the market with the first highly rated "hyperscaler" bond deal since August, featuring 10 tranches of debt that would mature in two to 40 years, according to data from Informa Global Markets.

The company is hoping to raise at least $25 billion, according to a Bloomberg News report. So far, demand is looking strong: Bookrunners have already received $115 billion in orders.

This comes after a brutal selloff hit bonds sold by major and minor tech companies, including neocloud CoreWeave (CRWV). These companies have increasingly turned to debt to help finance one of the biggest U.S. infrastructure projects in history.

The expectation is that some $1 trillion in capital expenditures will be needed in each of the next few years to build enough data centers to meet the voracious needs of AI models. As free cash flow has dwindled, many of the biggest AI companies have been forced to turn to the capital markets for financing.

Microsoft (MSFT) will be the first U.S. investment-grade corporate bond financing since Blackstone-backed QTS Realty Trust raised $3.9 billion in the market on Aug. 18, according to BofA Global data. SpaceX (SPCX) and Google parent Alphabet (GOOGL) also went to market with big debt deals around that time.

What's changed since the summer is which companies investors want to back in the AI race - and at what level.

"There's a bifurcating in this AI trade, just like there's been a bifurcating of consumers and the housing market," said Byron Anderson, a portfolio manager and head of fixed income at Laffer Tengler Investments. "Everything is the haves and have-nots."

The 10-year Treasury yield BX:TMUBMUSD10Y has hit a 24-year high in recent weeks, leading to more stress in credit markets. CoreWeave's 2032 bonds hit a high yield of 15.3% recently, but were back closer to 14.2% on Thursday, according to MarketAxess. Spreads on the riskiest junk bonds have blown out. Meanwhile, much of the funding for the artificial-intelligence build-out has relied on the investment-grade corporate bond market, one of the world's deepest pockets of capital.

Tigress Financial analyst Ivan Feinseth told MarketWatch that he sees Microsoft's debt offering as a "positive development" that will help the company accelerate its revenue growth.

The company is "taking advantage of its AAA credit rating to secure long-term capital, preserve liquidity and accelerate investments in data centers, cloud capacity and AI infrastructure," he said.

Bond and stock portfolios have been filled to the brim with AI exposure over the past year. Yet some analysts were saying they wouldn't be surprised if more hyperscalers were to follow suit and raise funds this year.

"As long as capex continues to ramp, I'd expect a hunger for more financing," Argus Research analyst Joseph Bonner told MarketWatch, referring to capital expenditures, or corporate spending on property, plants and equipment.

Of note, companies have been seeking other ways, beyond debt, to make ends meet for their AI infrastructure funding - such as raising equity, like Meta (META), or Oracle's (ORCL) strategy of issuing less debt going forward and having customers directly put their hardware into data centers.

Feinseth thinks Microsoft's move could help reopen the market for more hyperscaler debt offerings, but as investors become more choosy, companies with lower credit ratings could struggle to raise additional capital.

"Investors will increasingly differentiate between highly rated companies with substantial recurring revenue and free cash flow, like Microsoft, and more leveraged infrastructure providers dependent on future demand," he said.

Microsoft CFO Amy Hood said on the earnings call on Wednesday: "We're fortunate to have access in the debt markets, given that where our ratings are.

"We feel like we have lots of options to be able to tap the financing markets when they make sense and they're attractive," she added.

Microsoft declined to comment beyond the public documents filed as part of the bond deal and Hood's recent comments.

-Joy Wiltermuth -Hannah Pedone

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10-29-26 1601ET