The race to build AI infrastructure is draining free cash flow and pushing up balance sheet risks at six major technology companies, credit rating agency Moody’s said in a research note this week, according to CNBC.
“The move from asset-light to asset-heavy models will require unprecedented levels of investment,” the agency wrote in a note Wednesday, saying the shift threatens the credit quality of Microsoft, Amazon, Alphabet, Meta, Oracle and CoreWeave.
Moody’s projects raise capital expenditures of $785 billion in 2026, rising to about $1 trillion the following year. Direct debt across the six countries has reached nearly $460 billion. Hours after the memo was circulated, Alphabet gave a live demonstration of the mechanism.
Alphabet shows the cash pressure of AI in real time
Alphabet reported second-quarter results after the close on July 22, showing revenue rising 24% to $119.8 billion and Google Cloud revenue increasing 82% to $24.8 billion. Per earnings call copy. Operating income was $40.8 billion, with a margin of 34%.
Capital spending of $44.9 billion exceeded $39.1 billion in operating cash flow, leaving free cash flow at negative $5.9 billion, the first negative quarter since Alphabet went public in 2004. CFO Anat Ashkenazi raised full-year capital expenditure guidance to a range of $195 billion to $205 billion, up from $180 billion to $190 billion in the previous quarter, and noted a significant increase Another in 2027.
Shares fell more than 4% after hours and buybacks were halted. There are two types of pillows. Alphabet remains positive on a trailing 12-month free cash flow basis, at about $53 billion, and still has approximately $240 billion of cash and marketable securities.
Oracle and CoreWeave bear the most severe credit risk
According to Moody’s, Microsoft, Alphabet, Amazon and Meta have some of the strongest balance sheets of all companies globally, suggesting an immediate downgrade to their credit ratings is unlikely. Pressure piles on the two lowest rated members.
Oracle holds a Baa2 rating with a negative outlook, two notches above a junk rating. CoreWeave operates in a high yield area as it is Ba3 rated and finances its Nvidia GPU servers using complex debt models. According to a Cryptopolitan report, Oracle’s unrealized performance obligations were recorded at $523 billion, which is nearly nine times its annual revenue.
Both companies are now on the other side of the supply problem that Alphabet also faces. Alphabet said it will expand its use of third-party capabilities in the third quarter as a bridge while it builds internally, naming CoreWeave and Nebius among the providers. Both stocks rose 4% to 5% after the disclosure.
Data center leases hide a larger debt problem
According to Moody’s, the total amount committed in terms of leases for the six companies was $1.2 trillion, with $820 billion allocated to building data centers which it considers debt-like obligations.
As Cryptopolitan reported earlierMoody’s analysts, including David Gonzalez and Alistair Drake, calculated the non-provisional rent figure at $662 billion in February. It has risen by almost 24% in five months, and total off-balance sheet debt is now almost double the group’s total direct debt.
Another analysis by the Nikkei newspaper reported that five of the companies allocated $1.65 trillion to AI-related investments that are not recorded as debt under current accounting standards.
According to the Bank for International Settlements, some of the financing involved in building AI appears to be shadow borrowing.
Moody’s warns that AI spending is becoming circular
Excessive expansion specialists point to the backlog of large contracts as evidence of strong demand. But part of that demand is coming from pre-IPO AI labs like OpenAI and Anthropic, which have also received significant investments from the same tech giants to whom they sell cloud capacity.
Moody’s has described it as a circular AI ecosystem. The problem is that the industry’s largest players are becoming increasingly interconnected through the same customers, financing arrangements, and expectations about future AI demand.
Alphabet’s cloud business backlog reached $514 billion, up more than $50 billion quarter-over-quarter. The company is also leasing Nvidia chips from SpaceX for about $920 million a month to meet demand.
According to Moody’s, “investors will increasingly question whether spending is generating sufficient returns.”
