In recent months, large technology companies such as Amazon, Alphabet, and Meta have turned to the bond market, raising tens of billions of dollars to fund massive investments in artificial intelligence data centers. These three firms are expected to continue borrowing in the coming years, with capital expenditures projected to approach or even exceed their internally generated cash flows.

A key question is how much additional debt these companies can take on without triggering credit rating downgrades and higher financing costs. Credit rating agency S&P estimates that by year-end, the total debt of these three companies will slightly exceed their cash reserves, reversing the current situation. Over the long term, however, S&P's assessment suggests each company could borrow nearly $200 billion while maintaining their current credit ratings.

The growing reliance on debt to fund expansion signals that the AI boom may permanently alter the financial profiles of these tech giants. Historically, technology firms used substantial profits to diversify operations and fund large-scale stock buybacks. Now, they may transition into highly leveraged entities with minimal free cash flow—at least for the next several years.

S&P and Moody's determine credit ratings by evaluating current debt levels relative to earnings and projecting how these ratios may evolve. Currently, both agencies assign Alphabet higher investment ratings than Meta or Amazon: AA+ or AA2. Meta receives the lowest ratings—AA- from S&P and AA3 from Moody's—reflecting analysts' view that its heavy reliance on advertising makes it less diversified than Alphabet and Amazon, both of which benefit from robust cloud businesses and other profitable segments.

Neither rating agency anticipates changes to these tech companies' credit ratings in the near future. Javed Hussain, Head of S&P Global Ratings, noted that Alphabet's AA+ rating is expected to remain stable unless its debt-to-EBITDA ratio reaches 1. Currently, Alphabet's ratio is zero, as it holds more cash than debt.

With analysts projecting Alphabet's EBITDA to reach $216 billion this year, a debt-to-EBITDA ratio of 1 would imply net debt of approximately $200 billion after deducting cash. As of the end of 2025, the company reported $46 billion in debt and $126 billion in cash.

Alphabet plans capital expenditures of around $180 billion this year, with much of its expected cash flow allocated to these investments. Additionally, the company intends to acquire cybersecurity firm Wiz and data center infrastructure provider Intersect, transactions totaling $37 billion.

S&P forecasts that by the end of 2026, Alphabet's debt will exceed cash by $16 billion, implying a debt-to-EBITDA ratio between 0.1 and 0.2. This projection assumes total debt of $117 billion, including future data center lease obligations that S&P includes in its debt calculations, and a year-end cash balance of $102 billion.

The agency's latest outlook indicates that none of the three companies—Alphabet, Amazon, or Meta—are expected to exceed a 0.5 debt-to-EBITDA ratio in 2026 or 2027, suggesting their credit ratings will remain secure in the near term.

However, Hussain noted a potential risk: S&P may reconsider its downgrade threshold of a 1x debt-to-EBITDA ratio if cash flow deterioration becomes widespread or if the companies fail to generate sufficient returns from their AI investments.

Christian Hoffman, Head of Fixed Income at Thornburg Investment Management, stated that credit rating downgrades are "certainly possible" given planned increases in capital spending. He added, "Debt is not expensive, and frankly, even if their ratings are lowered, their borrowing costs would not rise significantly."

Hoffman also observed that while demand for tech bonds remains strong, "there will come a point when investors decide enough is enough." This shift would be reflected in widening spreads between tech bonds and U.S. Treasuries.

One indicator that such a shift may already be underway: the cost of credit default swaps for Meta—similar to insurance on the company's debt—has risen sharply over the past year relative to Treasury yields.