Alphabet's $80 billion equity raise is a signal that the AI party can continue
And the next round is on Google.
Not so long back, Uber was the go-to example of a capital-hungry business, raising about $8 billion and change when it went public in 2019. By comparison, Alphabet, already flush with cash, is raising ten times that amount in an equity round announced yesterday evening.
While Alphabet stock is down, as investors anticipate some dilution, many of those with starring roles in the AI trade are ripping in the premarket on Tuesday morning. Questions about how hyperscaler capex could get any higher to fund incremental spending in the AI boom just got answered: all funding avenues are on the table, and the limit to splurging on data centers and AI infrastructure might not be the free cash flow plus current cash balances of any one firm. In Alphabet's case, the $70+ billion of FCF that the company's been printing in recent years is expected to mostly evaporate.
Suppliers with close ties to Alphabet, most notably Broadcom, are getting particularly bid up, with the chip giant up nearly 7% as of 6am ET on Tuesday, as investors presumably see upside to the pair’s long-term deal that runs through 2031 and sees Broadcom supply chips to Alphabet.
A whole host of other AI winners are also up this morning, although not all of the sentiment can be attributed to Alphabet. Marvell Technology is soaring after Nvidia's CEO said it will be the “next trillion-dollar company,” while HPE’s blowout results have sent Dell and SMCI soaring higher.
Like riding a bike
To raise this funding, Alphabet has had to exercise a corporate muscle that it hasn't used in a long time — the last time the company raised substantial primary equity was back in 2005, as noted by Sergey Alexashenko on X.
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The details of the raise itself are as follows:
$30 billion underwritten public offerings, of which:
$15 billion in depositary shares representing mandatory convertible preferred stock, and
$15 billion in Class A Common and Class C Capital Stock.
$40 billion at-the-market, offering program for Class A Common Stock and Class C Capital Stock, beginning in Q3 2026.
$10 billion sold to Berkshire Hathaway, split between the Class A Common and Class C Capital.
Eschewing the debt markets is an interesting decision. Alphabet has already tapped the credit markets a bunch of times in the last year, and the company’s long-term debt has spiked to a little over $90 billion. But before you envisage Alphabet drowning in borrowings, that’s not even enough to put the company into a net debt position overall, owing to its enormous cash balance.
So we have a company in a net cash position, deciding to dilute shareholders, rather than raise debt. Here are a few potential reasons for why (amongst others, I’m sure):
Google execs think the stock has run a little far, and want to cash in on that high share price.
Preliminary conversations about raising more debt suggested that the interest rates for this kind of size might have been:
A) Sub-optimal from a pure corporate finance cost of capital perspective.
B) Potentially spooky for investors (see: Oracle), or damaging to its credit rating.
Google execs want to suck up some of the equity funding available.
The last idea may have some merit; there are a few major IPOs coming down the pike in the AI space, most notably OpenAI and Anthropic — with the latter filing confidentially to go public just yesterday. Hoovering up some of the equity funding in the room just before those go live feels like a pretty solid strategy. In fact, that undersells what Alphabet just announced, considering that the biggest IPO on record to date was Saudi Aramco raising a relatively piddly $29.4 billion.
Sundar Pichai and co. just took a huge, lung-filling deep breath, hoping that it will last them for the AI spending splurge to come. If it deprives some rivals of even a little bit of oxygen available come the summer? Even better.
