Moody's says 'unprecedented' AI spending threatens credit quality of Amazon, Meta, Alphabet and others

Moody’s Ratings issued a fresh warning regarding the massive capital investments required for artificial intelligence. Hyperscalers including Alphabet, Amazon, Meta, and Microsoft are shifting from asset-light business models to capital-heavy infrastructure projects. This transition consumes significant free cash flow and increases overall balance-sheet risk.

The agency notes that annual spending on AI infrastructure is projected to reach $785 billion in 2026, climbing toward $1 trillion by 2027. Companies are relying on debt, equity sales, and off-balance-sheet leasing arrangements to secure the necessary hardware and data centers. While these tech giants maintain some of the strongest balance sheets globally, the sheer scale of the investment is beginning to pressure credit quality metrics.

Lease commitments have ballooned to $1.2 trillion, with a large portion attributed to projects currently under construction. Moody’s considers these long-term lease obligations as debt-equivalent liabilities. The report specifically highlights a circular ecosystem where tech giants invest in AI labs, which then spend that same capital back on the hyperscalers' cloud services.

While Microsoft, Alphabet, Amazon, and Meta appear stable, the pressure is more visible among lower-rated firms like Oracle and CoreWeave. These companies operate in the high-yield market and rely on private debt structures to build their GPU fleets. Investors must now determine if these unprecedented expenditures will produce sufficient returns to justify the current financial strain on these major corporations.