Alphabet unveils plan to sell $80B in shares to fund ongoing AI infrastructure buildout

Google LLC parent company Alphabet Inc. is seeking to raise a massive $80 billion in equity capital through a stock sale in an effort to bankroll the ballooning costs of its artificial intelligence infrastructure buildout.

In a key endorsement of the plan, Warren Buffett’s Berkshire Hathaway Inc. has already agreed to throw in $10 billion through a private placement.

The technology giant said in a statement that the money raised will be used to fund its ongoing investments in data center infrastructure and “world-class AI compute” and help it to meet “unprecedented customer demand” for its AI services. Officials added that the company is “experiencing strong demand for its AI solutions and services from enterprises and consumers, at levels that are exceeding the company’s available supply.”

“By scaling its investments, the company seeks to expand its foundational infrastructure to support the significant growth opportunity ahead,” it added.

Alphabet has been racing to build out its AI infrastructure in an effort to keep up with rivals such as Amazon Web Services Inc., Microsoft Corp. and Meta Platforms Inc. The four hyperscalers are expected to spend a combined $700 billion-plus on AI infrastructure this year, and that is really only the beginning. In 2027, Wall Street analysts anticipate that total AI-related capital expenditures will rise to more than $1 trillion.

In April, Alphabet said it’s increasing its own capital expenditure forecast from an initial estimate of between $175 billion and $185 billion to a new range of $180 billion and $190 billion. In response to a question from an analyst asking what keeps him awake at night, Google Chief Executive Sundar Pichai (pictured) said “compute capacity” is his biggest worry.

“Be it power, land, supply chain constraints: how do you ramp up to meet this extraordinary demand for this moment?” he responded.

Hyperscalers have primarily funded their AI infrastructure buildouts through the debt markets. In April, Alphabet held a global bond issuance that exceeded $30 billion, then raised an additional $11 billion in pounds sterling and Swiss francs from European investors. That came after a $25 billion bond sale in November.

Alphabet has been helped by its surging stock price, which has more than doubled in the last year, putting it ahead of all of its megacap peers. Investors have cheered the company’s spending plans and also the strong returns it has seen thanks to services such as Gemini. However, its growth has stalled this year, with the stock up just 18% in the year to date, and it slipped in extended trading today.

The latest funding plan includes $30 billion in underwritten stock offerings, of which $15 billion will be sold as “depositary shares representing mandatory convertible preferred stock.” There’s the $10 billion from Berkshire, and the additional $40 billion will come through an “at-the-market offering program” encompassing Class A and Class C shares that will begin in the third quarter.

Constellation Research analyst Holger Mueller said the stock sale is a smart move based on a proven strategy and makes a lot of sense given the demand it’s seeing for its AI services. “The AI wars are heating up and it costs a lot of money to participate, with data centers being the main expense,” the analyst said. “Alphabet’s AI buildout has already made a substantial dent in its cash flow, and it has dipped into the debt markets already, so a stock sale is its best option. There’s still a lot of money sitting on the sidelines that wants in on AI, and if you’re stock is already well up this year, you’re not going to have an issue raising the $80 billion you want.”

Alphabet has hired the services of Goldman Sachs, JPMorgan Chase and Morgan Stanley as joint book-running managers for the underwritten offerings. Goldman Sachs will also act as the placement agent for Berkshire’s private placement.

Berkshire has become one of the largest investors in Alphabet. It revealed it has been buying up Alphabet’s stock in the third quarter of last year, and prior to today’s announcement, its stake in the company was valued at about $20 billion, making it one of its top investments.

The company had initially invested $4.3 billion in Alphabet’s stock in November, in what was one of its most significant moves into the technology sector for years. However, Apple Inc. remains its biggest technology holding.

Photo: Robert Hof/SiliconANGLE