Moody’s Ratings said in a research note this week that the race to build AI infrastructure is draining free cash flow and pushing balance-sheet risk higher at six major technology companies, per CNBC.
“The transition from asset-light to asset-heavy models requires unprecedented levels of investment,” the agency wrote in the Wednesday note, saying the shift threatens credit quality at Microsoft, Amazon, Alphabet, Meta, Oracle, and CoreWeave.
Moody’s projects combined capital expenditures of $785 billion in 2026, climbing to about $1 trillion the following year. Direct debt across the six has reached roughly $460 billion. Hours after the note circulated, Alphabet delivered a live demonstration of the mechanism.
Alphabet shows the AI cash squeeze in real time
Alphabet reported second-quarter results after the close on July 22 showing revenue up 24% to $119.8 billion and Google Cloud revenue up 82% to $24.8 billion, per the earnings call transcript. Operating income reached $40.8 billion on a 34% margin.
Capital spending of $44.9 billion outran $39.1 billion in operating cash flow, leaving free cash flow at negative $5.9 billion, the first negative quarter since Alphabet went public in 2004. Chief Financial Officer Anat Ashkenazi lifted full-year capex guidance to a range of $195 billion to $205 billion, up from $180 billion to $190 billion a quarter earlier, and signaled a further significant increase in 2027.
Shares fell more than 4% after hours and buybacks were halted. There are two cushions. Alphabet is still positive on a trailing-12-month free cash flow basis, at about $53 billion, and it still has roughly $240 billion in cash and marketable securities.
Oracle and CoreWeave carry the sharper credit risk
According to Moody’s, Microsoft, Alphabet, Amazon, and Meta all have some of the strongest balance sheets among all companies globally, which suggests that an immediate downgrade is highly unlikely to happen for them. The pressure piles on the two lower-rated members.
Oracle carries a Baa2 rating with a negative outlook, two notches above junk. CoreWeave is operating in a region of high yield as it has Ba3 rating and finances its Nvidia GPU servers using complicated debt models. As per the report by Cryptopolitan, Oracle’s unfulfilled performance obligation was recorded to be $523 billion, which is almost nine times more than its yearly revenues.
Both companies now sit on the other side of Alphabet’s supply problem as well. Alphabet said it will expand its use of third-party capacity in the third quarter as a bridge while it builds internally, naming CoreWeave and Nebius among the providers. Both stocks rose 4% to 5% on the disclosure.
Data center leases hide the bigger debt problem
According to Moody’s, the total amount committed in terms of leases for the six companies was pegged at $1.2 trillion, with $820 billion committed to the construction of data centers that it views as debt-like liabilities.
As Cryptopolitan earlier reported, Moody’s analysts including David Gonzales and Alastair Drake had calculated the unstarted-lease figure at $662 billion in February. It has climbed roughly 24% in five months, and the off-balance-sheet total now runs to nearly twice the group’s combined direct debt.
Another analysis carried out by Nikkei reported that five of the firms had committed $1.65 trillion toward AI-related investments that were not recorded as debts under existing accounting standards.
According to Bank for International Settlements, some of the financing involved in the AI buildout looks like shadow borrowing.
Moody’s warns AI spending is becoming circular
Hyperscalers point to large contract backlogs as proof that demand is strong. But part of that demand comes from pre-IPO AI labs such as OpenAI and Anthropic, which have also received major investments from the same tech giants selling them cloud capacity.
This was described by Moody’s as a circular AI ecosystem. The problem is that the largest players in the industry become increasingly interrelated by the same customers, funding arrangements, and expectations about AI demand in the future.
The backlog for Alphabet’s cloud business was $514 billion, a more than $50 billion increase quarter over quarter. The company is also renting Nvidia chips from SpaceX at about $920 million per month to satisfy the demand.
According to Moody’s, “Investors will increasingly ask whether the spend generates sufficient returns.”