Microsoft's $25 billion AI bond sale attracts $100 billion in bids: Why is it turning to debt despite its cash pile?

Microsoft plans to raise about $25 billion in its first US investment-grade bond sale in more than nine years, with orders exceeding $100 billion. 

Microsoft is planning to raise about $25 billion through its first US investment-grade bond sale in more than nine years, as the technology giant joins its Big Tech peers in turning to debt markets to fund its artificial intelligence (AI) ambitions.

The proposed bond sale had gathered more than $100 billion of orders, or over four times the size of the offering, people close to development informed Reuters.

The move marks a shift in how major technology companies are financing their investments. Traditionally, the Silicon Valley giants have typically relied on their large coffers to fund investments. However, the AI spending spree is prompting them to increasingly borrow money and raise equity.

Why does Microsoft need to borrow?

“Microsoft intends to use the net proceeds from the offering for general corporate purposes,  which may include, among other things, funding for working capital, capital expenditures, repurchases of capital stock, acquisitions, and repayment of existing debt,” according to a statement. The offerings should close on Nov. 4, the company said.

Microsoft is selling the debt in as many as 10 tranches, with maturities ranging from 2 to 40 years, Bloomberg reported, adding that no final decision had been made on the offering's size and that it may change according to demand.

Wells Fargo, JPMorgan Chase and UBS Group are managing the bond offering, according to the report.

Microsoft CFO Amy Hood indicated the company's approach to financing during an earnings call a day before the bond sale report emerged.

The company would pursue additional sources of funding "when we believe it is attractive to do so", Hood told investors, citing the need to preserve cash flows and financial flexibility.

Sanchari Ghosh