As we have discussed ad nauseam in the past years, perhaps the biggest mystery surrounding the entire AI supercycle, is where will the hyperscalers find the funds to pay for the trillions in projected capital spending now that most of their Free Cash Flow is flat or negative (with the exception of Microsoft).
And while many are forced to resort to aggressive debt issuance with Morgan Stanley estimating that credit markets will fund $1.5 trillion of global data center spending through 2028...
... or participating in murky rating-boosting SPV deals, which as we discussed recently indicate an unwillingness to exhibit AI related assets on their balance sheets something others are also catching up to...
... others opt to sell stock instead.
That's what Google parent Alphabet did after the close today when it announced it was raising $80 billion in equity offerings, including an investment deal with Berkshire Hathaway, to help fund its massive AI capex plans.
The offering includes a $40 billion so-called at-the-market (ATM) program, traditionally reserved for short-squeezed meme stocks selling directly to retail for which there is no clear institutional demand, to sell shares from time to time beginning in the third quarter, according to a statement Monday.
The company will also offer $30 billion in underwritten offerings of shares and mandatory convertible preferred stock, as well as a $10 billion private placement with Berkshire.
“AI is driving an expansionary moment for Alphabet,” the company said in the statement. “By scaling its investments, the company seeks to expand its foundational infrastructure to support the significant growth opportunity ahead.”
Alphabet intends to use the proceeds from the various offerings for "general corporate purposes, including capital expenditures to scale AI infrastructure and global compute." Remarkably, Google revealed that it will use the bulk of the ATM offering to pay for tax obligations related to vesting of employee equity awards. In other words, the multi-trillion company is using retail investors to pay taxes.
The mandatory convertible stock and the underwritten common equity offerings are expected to price Tuesday after the market closes in New York, according to terms of the deal seen by Bloomberg News.
Berkshire Hathaway started building a stake in Google’s parent last year, and held Class A and Class C shares collectively worth about $16.6 billion as of the end of March, according to regulatory filings. To incentivize Berkshire to invest alongside the ATM offering, Google agreed to sell $10 billion to Berkshire at a solid discount to its closing price of $376, namely a ~6% discount for the $5 billion Class A Common Stock, and an almost 8% discount for the $5 billion Class C offering at $348.20.
This is the second notable investment by Berkshire in just two days as the company starts to put its massive cash hoard to use.
Greg Abel, who took over the reins of the firm after Warren Buffett retired last year, has started to invest its record $397 billion cash pile. On Sunday, Berkshire announced its intention to buy home builder Taylor Morrison for $6.8 billion, providing a vote of confidence in the US housing market.