Alphabet calls out new AI-related risks,m as it taps debt market to fund buildout

As Alphabet ventures back into the debt market to support its ambitious artificial intelligence initiatives, the company is openly recognizing the emerging risks associated with AI advancement and substantial infrastructure investments. In its recent annual financial report, Alphabet, the parent company of Google, emphasized the potential repercussions of AI on its primary advertising revenue stream, along with concerns about possibly having "excess capacity" due to significant expenditures. The company noted in its filing with the SEC that to satisfy the increasing computational demands for AI training and traditional cloud services, it is engaging in extensive leasing agreements with third-party operators. This approach may lead to heightened costs and complexities in operations. Furthermore, Alphabet warned that significant commercial contracts could result in increased liabilities should there be nonperformance by the company, its partners, or vendors. A striking figure in Alphabet's earnings report was $185 billion, indicating the upper limit of its anticipated capital expenditures for the current year—more than double what was projected for 2025. To fund its AI projects, the tech giant aims to raise $20 billion through a U.S. dollar bond sale, as per sources who requested anonymity due to the sensitive nature of the details. This bond sale is set to occur in four phases, including a century-long bond issuance in sterling, with indications that the offering is five times oversubscribed. Bloomberg first disclosed the planned debt issuance, initially expected to total $15 billion. In November, Alphabet successfully conducted a $25 billion bond sale, leading to a surge in long-term debt, which quadrupled to $46.5 billion by 2025. CFO Anat Ashkenazi mentioned during last week’s earnings call that the firm aims to manage its investments responsibly to uphold a sound financial standing. When asked what concerns executives the most, CEO Sundar Pichai pointed to "compute capacity," noting challenges related to power, land, and supply chain constraints as the company strives to meet soaring demand. Collectively, tech giants including Alphabet, Microsoft, Meta, and Amazon are expected to ramp up capital expenditures this year by over 60% compared to record levels reached in 2025, as they invest in high-cost chips and new facilities. Central to Google's AI strategy is Gemini, its large language model and AI assistant, which competes directly with offerings from OpenAI and Anthropic. Pichai revealed that Gemini has surpassed 750 million monthly active users, an increase from 650 million last quarter. As generative AI gains traction among consumers, Google faces the challenge of potential declines in internet search usage, which could impact its leading advertising business—a risk now explicitly mentioned in its financial filings. The company stated, "We and our competitors continuously adapt to meet this shift and offer new advertising formats. However, there is no guarantee that we will effectively and competitively adjust to these changes, nor that our new strategies will succeed." So far, Google has managed to alleviate fears surrounding AI's impact on its search and advertising divisions, as evidenced by a 13.5% rise in ad revenue for the fourth quarter, amounting to $82.28 billion.