Moody's Warns AI Spending Threatens Credit Quality of Amazon, Meta, Alphabet, and Others

Moody's Ratings has cautioned that the trillion-dollar race to build artificial intelligence infrastructure is eroding free cash flow and raising balance-sheet risk at the world's largest technology companies, warning that the financial strain "threatens credit quality" across the sector.

In a research note released Wednesday, Moody's tracked six companies — Microsoft, Amazon, Alphabet, Meta, Oracle, and CoreWeave — flagging that even the most cash-rich corporations are increasingly relying on debt, equity issuances, and off-balance-sheet arrangements to fund their AI ambitions.

"Previously, these companies relied on asset-light structures centered on software, intellectual property, and scalable cloud services that required modest capital investment," Moody's wrote. "The transition from asset-light to asset-heavy models requires unprecedented levels of investment and capital raising."

The ratings firm projects that capital expenditures across the group will reach $785 billion in 2026 before climbing to approximately $1 trillion in 2027. Direct debt across the six hyperscalers has already reached roughly $460 billion, according to the report.

Off-balance-sheet obligations compound the picture. Moody's said lease commitments across the group have ballooned to $1.2 trillion, with more than $820 billion tied to data centers that have not yet been completed. While those leases do not appear as traditional debt on company balance sheets, Moody's considers them debt-equivalent liabilities that will bind companies to significant rent payments over time.

The shift underscores how generative AI has disrupted a decades-long Silicon Valley formula. Software-driven businesses required little capital to scale, producing wide profit margins and fortress balance sheets. AI infrastructure, by contrast, demands physical warehouses packed with expensive, energy-intensive servers and chips — a fundamentally different financial profile.

To illustrate the magnitude of the funding push, the report noted that Alphabet last month announced an $85 billion equity sale to help finance its expansion.

Moody's was careful to distinguish between the group's stronger and weaker credits. Microsoft, Alphabet, Amazon, and Meta retain some of the strongest corporate balance sheets globally, making it unlikely their investment-grade ratings face imminent risk. The more immediate pressure falls on lower-rated entities.

Oracle carries a Baa2 rating with a negative outlook, placing it just two notches above junk status. CoreWeave, which operates within the high-yield market at a Ba3 rating, relies on complex private debt structures to finance its GPU hardware fleets.

The report also identified structural circularity within the AI ecosystem. Some of the multibillion-dollar revenue backlogs reported by hyperscalers stem from strategic deals with pre-IPO AI labs including OpenAI and Anthropic. Those labs, in turn, spend heavily on cloud computing from the very companies that invested in them — a loop that Moody's said heightens risk because many of the industry's largest players are increasingly dependent on the same customers and the same assumptions about future demand.

Moody's acknowledged meaningful offsets. Demand for AI computing remains robust, cloud businesses continue to expand, and the hyperscalers have signed hundreds of billions of dollars in long-term customer contracts that provide a degree of revenue predictability.

Still, the ratings firm said the sector's financial profile is undergoing a structural transformation unlike anything seen during the cloud era. "Investors will increasingly focus on these companies' ability to realize an adequate return on investment," Moody's said.

With capital expenditure commitments extending years into the future and revenue from AI infrastructure still materializing on a longer time horizon, the tension between spending and returns is likely to define how investors and credit analysts assess these companies for years to come.

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