The $25 billion blockbuster bond puts Microsoft in AI winners’ circle
Microsoft Corp.’s substantial $25 billion bond offering received an enthusiastic welcome. That does not imply that investors will exhibit the same level of receptiveness when the subsequent major technology borrower emerges. The software giant, recognised as one of the leading AI hyperscalers, attracted over four times the demand for its 10-part debt sale on Thursday. That enabled underwriters led by Wells Fargo & Co., JPMorgan Chase & Co. and UBS Group AG to reduce the additional yield Microsoft is required to pay on the bonds relative to benchmark Treasuries. The offering marked the end of a nearly three-month hiatus in bond sales from Big Tech hyperscalers, and as new issues are concerned, the process proceeded without any significant hurdles. However, it does not inherently indicate a definitive resolution to the recent market anxieties surrounding AI expenditures and profitability, which have led to declines in riskier tech debt and driven the cost of safeguarding against default for Broadcom Inc. and SpaceX debt to unprecedented levels.
That is due to the fact that Microsoft distinguishes itself from its competitors in terms of its credit health and debt composition. Prior to Thursday, it had not accessed the US investment-grade market since 2017, when it secured $17 billion. It also holds the unique position of being the only publicly traded US company, apart from Johnson & Johnson, to receive top AAA ratings from both Moody’s Ratings and S&P Global Ratings. “The credit markets are doing a lot of the heavy lifting for sorting out winners and losers at this point,” said Jack Janasiewicz. “The market remains open for issuance, but not for everybody.” Microsoft’s transaction garnered $115 billion in orders at its peak, representing 4.6 times the size of the offering, according to sources. That positions it as one of the most in-demand US corporate bond offerings in history, based on data. Maturities extend from two years to 40 years. The sale marked the inaugural transaction from a blue-chip hyperscaler following Alphabet Inc.’s pricing of $25 billion in debt on August 6.
Pricing on the longest maturity, a note due in 2066, tightened by as much as 0.3 percentage points from initial discussions to a spread of 1.05 percentage points over Treasuries, according to sources. That compares with a spread of approximately 1.33 percentage points for Alphabet’s 40-year bonds, which possess lower ratings, as indicated by Trace pricing data. “The timing of this deal feels opportunistic,” said Brett Kozlowski, adding strong demand was expected given the “uniqueness of very rare long AAA paper” and yields of more than 6%. “This combination likely highlights the market’s demand for some diversification in names even as massive supply creates challenges,” he said. In a market that is becoming increasingly saturated, Microsoft maintained a competitive advantage; however, investors remain burdened by technological liabilities and may face challenges in absorbing additional commitments. Before Thursday, hyperscalers and data center developers had already raised over $313 billion through investment-grade bond sales globally this year, nearly three times the amount raised in the entirety of 2025, according to data.
The sector has propelled global bond sales to an unprecedented $6.63 trillion this year, with two months remaining in the calendar year. Some of the larger borrowers have indicated a temporary withdrawal from debt markets or have sought alternative avenues for capital raising. Oracle this week announced its commitment to a gross debt growth of only $10 billion through fiscal 2030, alleviating investor apprehensions. In contrast, Meta Platforms Inc. has opted to access the equity market to secure $25 billion. Even Microsoft’s sale reflected the cautious sentiment of investors regarding the AI sector. The company incurred higher costs for its long-term debt this week compared to the lower-rated Procter & Gamble Co., which issued $1.25 billion in 30-year bonds at a spread of 0.6 percentage points over Treasuries. Microsoft’s 30-year debt spread was 0.95 percentage points above the benchmark. “Would I sign up for five year, seven year sort of paper? Sure, for Microsoft, yes,” said Ayako Yoshioka. “But when you get out into that 30-year, you still have some risks that you need to price in, in terms of what the business model is going to look like.” Microsoft remains a leading entity in the market, so robust that DoubleLine Capital raised the inquiry last year of whether it represented a superior credit investment compared to the US government.
Microsoft reported strong results for its fiscal first quarter on Wednesday, showcasing a 48% increase in cloud revenue while maintaining disciplined capital expenditures, alleviating investor concerns regarding excessive spending on artificial intelligence. During a conference call following the results, Chief Financial Officer Amy Hood stated that the company would seek to raise additional funds “when we believe it is attractive to do so.” The company possesses significant balance sheet capacity for borrowing. Analysts noted on Thursday that a $25 billion bond deal would result in a marginal increase in the company’s gross lease-adjusted leverage, rising to just over 0.7 times. The coveted deal mandate is poised to represent a significant achievement for the banks spearheading the transaction, especially UBS. Excluding self-led transactions, the Swiss bank occupies the 26th position in the Bloomberg US investment-grade corporate bonds league table for the current year, having arranged nearly $11 billion in deal volume.
