[Into The World Of AI] "We Will Repay the Principal in 100 Years"... Are Big Tech's Debt-Fueled Bets Recreating the Dot-Com Bubble?

Google Issues 100-Year "Century Bond"
Big Tech Players Like Meta and Amazon Raise Funds Through Bonds
"War Chest Battle" Intensifies...Pattern Resembling the Dot-Com Bubble

A 100-year ultra-long maturity bond has appeared in the information technology (IT) industry for the first time in about 30 years since the dot-com bubble. Alphabet, Google’s parent company, drew attention by issuing a so-called “century bond.” Because the issuance of 100-year bonds is extremely rare, the market response has been strong. As U.S. big tech companies rush into debt-funded investment on an astronomical scale to preempt the global artificial intelligence (AI) market, concerns are emerging that the dot-com bubble may be replayed.

According to Bloomberg and other foreign media, Alphabet has successfully issued a century bond denominated in British pounds. As orders poured in to nearly 10 times the issuance size of 1 billion pounds (about 1.98 trillion won), the spread (premium) was set at 0.45 percentage points over the 3-year UK government bond.

Alphabet will repay the principal to the holders of the century bond 100 years from now. Because bond price volatility increases as maturity lengthens, it is difficult to issue such bonds unless the issuer is a sovereign or a high-grade institution or corporation capable of bearing that risk. In the IT industry, activity had been quiet after IBM (1996) and Motorola (1997).

As Alphabet takes on uncertainty and moves to secure massive funding for building AI infrastructure, the “war chest battle” among big tech companies is intensifying. At the same time, some interpret it as an expression of confidence that its creditworthiness is comparable to that of a sovereign state. This is based on investor trust that Alphabet’s main revenue engines, its search and cloud ecosystems, will still exist 100 years from now.

Previously, Alphabet issued the longest 50-year maturity bond among technology company bonds denominated in U.S. dollars last year. On February 9 (local time), it issued U.S. dollar-denominated corporate bonds and raised 20 billion dollars (about 29 trillion won). This far exceeded the original target of 15 billion dollars (about 22 trillion won). Having flagged 185 billion dollars (about 270 trillion won) in capital expenditures for this year, Alphabet is reported to have secured almost all of the necessary funds through a series of successful bond issuances.

OpenAI, another cash-burning Netscape that vanished?... Clash over the 'bubble' argument

Other big tech companies are also actively issuing bonds. Meta issued 30 billion dollars (about 43 trillion won) in corporate bonds in the second half of last year to finance AI projects and data center construction. Amazon also issued 15 billion dollars (about 22 trillion won) in corporate bonds in November last year, increasing the size from the original plan of 12 billion dollars due to strong investor demand.

However, there are many who harbor doubts or issue warnings about whether these investments, which resemble the pattern seen during the dot-com bubble, will actually translate into profits. At that time, companies with a “.com” domain saw their share prices skyrocket even without a revenue model. Today’s surge in AI infrastructure investment and the rapid rise in the share prices of related companies over a short period are similar. This is why the “bubble” narrative continues to follow big tech’s battle for AI leadership.

Michael Burry, head of Scion Asset Management, who bet on a downturn in the housing market during the 2008 global financial crisis, is one of the most prominent pessimists. He has repeatedly warned of an “AI bubble collapse,” arguing that AI cannot be trusted and that the bubble could grow even larger than it is now. Regarding OpenAI, he said it could become “a second Netscape that burned through cash and then disappeared.” Economist Dean Baker (co-founder and senior economist at the U.S. think tank Center for Economic and Policy Research), who warned in advance of both the dot-com bubble and the 2008 housing market collapse, has also assessed that the bursting of the AI bubble is drawing near.

On the other hand, many argue that the current situation is different from the dot-com bubble era. Back then, small startups and venture companies without revenue models rushed in recklessly, whereas now well-capitalized big tech firms are securing firepower, which they say lowers the risk. In addition, although most companies went bankrupt during the dot-com bubble, firms such as Amazon, eBay, and Qualcomm survived and grew into today’s big tech companies. Jensen Huang, Chief Executive Officer (CEO) of Nvidia, said in a recent CNBC interview that concerns about overheated AI investment are excessive, calling it “a once-in-a-generation infrastructure build-out phase that will take another seven to eight years.”

Morgan Stanley stated that the investment-grade bond market is being restructured around AI infrastructure, and forecast that big tech borrowing this year will exceed a record 400 billion dollars (about 590 trillion won). This is more than double last year’s 165 billion dollars (about 240 trillion won).