Microsoft's $25 billion blowout bond puts it in AI winners' circle

By Brian Smith, Caleb Mutua and Davide Barbuscia

 

Microsoft Corp.’s mega $25 billion bond offering got a red-carpet reception. That doesn’t mean investors will be as welcoming when the next Big Tech borrower comes along.

 

The software giant, and one of the premier AI hyperscalers, drew more than four times demand for its 10-part debt sale Thursday. That allowed underwriters led by Wells Fargo & Co., JPMorgan Chase & Co. and UBS Group AG to lower the extra yield Microsoft must pay on the bonds over benchmark Treasuries. 

 

The offering broke a nearly three-month drought in Big Tech hyperscaler bond sales, and as new issues go, it was smooth sailing. But it doesn’t necessarily signal an all-clear from the recent market jitters over AI spending and profitability that sparked losses on riskier tech debt, and sent the cost of protecting Broadcom Inc. and SpaceX debt against default to record highs.

 

 

That’s because Microsoft isn’t like its rivals when it comes to its credit health and debt makeup. Before Thursday, it hadn’t tapped the US investment-grade market since 2017, when it raised $17 billion. It also has the distinction of being the only publicly traded US firm besides Johnson & Johnson with top AAA ratings from 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, multi-asset portfolio manager and lead portfolio strategist at Natixis Investment Managers Solutions. “The market remains open for issuance, but not for everybody.”

 

Microsoft’s transaction attracted $115 billion of orders at its peak, or 4.6 times the offering’s size, according to people familiar with the matter. That makes it one of the most sought-after US corporate bond sales on record, according to data compiled by Bloomberg. Maturities range from two to 40 years. 

 

The sale was the first from a blue-chip hyperscaler since Alphabet Inc. priced $25 billion of debt on Aug. 6. Pricing on the longest maturity, a note due in 2066, tightened by as much as 0.3 percentage points from initial talk to a spread of 1.05 percentage points over Treasuries, the people said. That compares with a spread of about 1.33 percentage points for Alphabet’s 40-year bonds, which have lower ratings, according to Trace pricing data.

 

“The timing of this deal feels opportunistic,” said Brett Kozlowski, portfolio manager at GW&K Investment Management, 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.

Still Stuffed

In an increasingly crowded market, Microsoft had an edge, but investors are still stuffed with tech debt and may have trouble digesting more. 

 

Before Thursday, hyperscalers and data center developers had already raised more than $313 billion through investment-grade bond sales globally this year, almost three times more than in the full year of 2025, according to data compiled by Bloomberg. The sector has catapulted global bond sales to a record $6.63 trillion this year, with two months still to go.

 

Some of the bigger borrowers have already signaled a retreat, for now, from debt markets, or turned elsewhere to raise money. Oracle this week disclosed it was committing to just $10 billion of gross debt growth through fiscal 2030, calming investor concerns, while Meta Platforms Inc. turned to the equity market to raise $25 billion.

 

Even Microsoft’s sale showed fingerprints of investors’ caution about the AI trade. The company paid more for longer-term debt this week than lower-rated Procter & Gamble Co., which sold $1.25 billion of 30-year bonds this week at a spread of 0.6 percentage point over Treasuries. Microsoft’s 30-year debt spread was 0.95 percentage point above the benchmark.

 

“Would I sign up for five year, seven year sort of paper? Sure, for Microsoft, yes,” said Ayako Yoshioka, director and senior investment strategist at Wealth Enhancement. “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 is still considered a premier name in the market — so solid that DoubleLine Capital last year posed the question of whether it was a better credit bet than the US government. 

 

Microsoft reported robust results for its fiscal first quarter on Wednesday, posting a 48% gain in cloud revenue while keeping its capital expenditures in check, soothing investors concerned about lavish spending on artificial intelligence. On a conference call after the results, Chief Financial Officer Amy Hood said the company would raise additional funds “when we believe it is attractive to do so.”

 

The company has plenty of balance sheet capacity to borrow, with CreditSights analysts saying in a note on Thursday that a $25 billion bond deal would increase the company’s gross lease-adjusted leverage by slightly more than a tick to 0.7 times.

 

The coveted deal mandate is likely to be a prestigious win for the banks leading the transaction, particularly UBS. When excluding self-led deals, the Swiss bank ranks 26th in the Bloomberg US investment-grade corporate bonds league table for this year, with nearly $11 billion in volume of deals arranged.