The Pulse
Microsoft Prices $25 Billion Bond Sale as AI Capital Spending Rises
Microsoft priced $25 billion of senior unsecured notes, with the offering expected to close November 4. The sale comes as the company forecasts approximately $170 billion in calendar-year capital spending and says it may seek additional fun
AI.info Team · Written with AI · fact-checked ·
“To complement cash generated by the business and preserve financial flexibility, we will access additional sources of funding when we believe it is attractive to do so.”
Amy Hood, executive vice president and chief financial officer of Microsoft, said on the earnings call
Microsoft prices 10 tranches of debt
Microsoft announced the pricing of $25 billion in senior unsecured notes on October 29. The company expects the offering to close on November 4. Its announcement divides the sale into 10 tranches: two floating-rate issues and eight fixed-rate notes.
The fixed-rate notes carry coupons from 4.85% to 6.35%, with maturities spanning November 2028 to November 2066. The longest-dated tranche, for $2 billion, carries a 6.35% coupon. Microsoft’s $25 billion sale is larger than its $17 billion debt offering in January 2017, according to the company’s announcements for the 2017 sale and the new issuance.
AI capacity pushes capital spending higher
The sale comes as Microsoft expands the computing capacity behind Azure and its AI services. In the first quarter of fiscal 2027, capital expenditures reached $45.2 billion. On the earnings call, Hood said roughly three-quarters went to short-lived assets, primarily CPUs and GPUs, and included higher memory and storage costs. She also said some third-party capacity deliveries expected in the quarter were delayed.
Microsoft expects capital spending to exceed $50 billion in its second fiscal quarter. Hood said calendar-year spending should be approximately $170 billion, citing delays in third-party capacity. She said the company currently expects capital spending to accelerate in the second half of the fiscal year, primarily on CPUs, memory and storage, GPUs, and third-party capacity deliveries shifted to that period. The transcript gives no comparison between the $170 billion forecast and an earlier expectation.
Hood says Microsoft expects to stay cash-flow positive
Hood told analysts Microsoft expects to remain free-cash-flow positive in fiscal 2027. In a question-and-answer exchange, she said the company had used leasing and had not yet tapped debt markets, and said Microsoft felt confident in the returns on its capital spending. She described financing as an option to use when attractive; she did not announce a specific borrowing plan for this bond sale.
Microsoft reported $64.5 billion in cash, cash equivalents and short-term investments as of September 30, according to its quarterly filing. The filing says existing cash, investments, operating cash flow and access to capital markets are expected to cover operating needs and commitments for at least the next 12 months and thereafter for the foreseeable future. It also says the company’s AI investments require substantial and increasing capital expenditures and continued access to capital, ahead of fully developed revenue streams.
The proceeds are not reserved for AI
Microsoft says net proceeds will go to general corporate purposes, which may include working capital, capital expenditures, share repurchases, acquisitions and repayment of existing debt. The announcement does not assign a specific share of the $25 billion to AI infrastructure. The sale comes amid the company’s stated spending plans, but its disclosed terms leave the proceeds available for broader uses.
The filing says revenue from AI and related cloud investments may not be realized within expected timeframes or at expected levels. It also says slower-than-expected adoption or lower customer use of Azure for AI workloads could mean Microsoft does not realize the expected returns on those investments. The company’s stated figures include a $25 billion bond offering, approximately $170 billion in expected calendar-year capital spending and a forecast that it will remain free-cash-flow positive in fiscal 2027.