Alphabet Raises $20 Billion via Bond Sale, Warns of AI-Related Risks

Alphabet, the parent company of Google, discussed the possible effects of AI on its advertising business in its annual financial report that was released last week. It was pointed out that the firm might have some spare capacity due to its massive field commitments. Sundar Pichai, CEO, also informed stakeholders on the analyst call that management was worried about compute capacity. In addition, he mentioned that there are problems with power, land, and the supply chain and asked how they might increase capacity to meet the current unprecedented demand.

The Key Challenges in Infusing AI into System

Alphabet is committing to large-scale leasing agreements with third-party operators. This is done to address the compute capacity demands of AI training and inference, in addition to regular cloud computing services. These arrangements could lead to a rise in costs and operational complexity. Alphabet, its counterparties, or vendors may incur more liabilities and duties as a result of large commercial agreements if they fail to execute them. Some worry that Google's own AI product, Gemini AI, will eat into Search's user base and revenue from the company's ad business if fewer people use it. The filing also acknowledged this.

The business went on to say that the brand, like its rivals, is always changing to accommodate this change and create new and improved forms of advertising. The success of such advertising forms, techniques, and products, as well as the company's ability to react to this change, is all uncertain. Ad revenue for Google's fourth quarter grew 13.5% year-over-year to $82.28 billion, indicating that the company has been able to mitigate the majority of the effects thus far. The computer giant's largest-ever issuance of US dollar bonds, which garnered $20 billion, took place on 9 February. The purpose of the sale was to finance efforts connected to artificial intelligence.

Alphabet’s AI Ambition and its Financing

The massive artificial intelligence (AI) projects that Alphabet has in the works are being funded by extensive borrowing. The corporation reportedly raised $20 billion in its largest-ever issuance of US dollar bonds on 9 February, surpassing its planned goal of $15 billion. Aside from this, there are plans for first-time deals in Switzerland and the United Kingdom, such as the issuance of 100-year bonds, which is quite unusual.

This is thus the first attempt at this kind of product by a tech company since the late '90s dotcom boom. Last week, Alphabet announced that it is aiming to spend up to $185 billion on capital expenditures this year. As it pours resources into data centres vital to its AI goals, this amount exceeds what it has spent over the previous three years put together. Since AI promotes more online searches, the investments are already increasing income, according to the corporation.