Moody's has raised alarms over increased financial risks linked to AI infrastructure investments by some of the biggest tech firms, spotlighting Oracle and CoreWeave as the most exposed in terms of credit health. The credit rating agency noted that giants like Microsoft, Amazon, Alphabet, Meta, Oracle, and CoreWeave are ramping up balance-sheet risks amid a surge in spending to build AI capabilities.
Alphabet’s recent quarterly earnings underscored this trend. The company’s capital expenditures outpaced its operating cash flow, with free cash flow turning negative for the first time since its IPO in 2004. Specifically, Alphabet’s Q2 revenue climbed 24% to $119.8 billion, and Google Cloud revenue soared 82% to $24.8 billion. However, the firm spent $44.9 billion on capital investments, exceeding the $39.1 billion generated from operating activities, resulting in a $5.9 billion free cash flow deficit.
The CFO, Anat Ashkenazi, responded by increasing the full-year capital expenditure forecast to $195 billion $205 billion, up from the previous estimate of $180 billion $190 billion, with further growth expected in 2027. This aggressive spending pushed Alphabet’s shares down more than 4% after hours and halted share buybacks temporarily. Despite those pressures, Alphabet maintains a substantial cash reserve of around $240 billion and positive free cash flow over the trailing twelve months.
Moody’s also highlighted the hidden risks outside of direct balance sheets. The agency pointed to $1.2 trillion in lease commitments and the complex interdependencies between cloud providers and AI labs, which could amplify vulnerabilities. With combined capital expenditures for these six firms projected at $785 billion in 2026 and nearing $1 trillion the following year, total direct debt has climbed to approximately $460 billion.
Oracle and CoreWeave are considered the riskiest due to their lower credit profiles compared to the other giants. This situation contrasts sharply with companies like Microsoft and Amazon, which have more solid balance sheets to absorb the AI investment fallout.
The shift from traditionally asset-light models to capital-heavy AI infrastructure is reshaping tech finance dynamics. As firms race to scale AI capabilities, the strain on liquidity and creditworthiness grows, and Moody’s analysis signals potential challenges ahead for investors and the broader industry.
