New York — Moody’s Ratings has told clients that the capital being poured into artificial intelligence infrastructure is eroding free cash flow and increasing balance-sheet risk at the largest cloud providers, in terms strong enough to represent a shift in how the agency views a group long treated as among the safest corporate credits anywhere.
In a research note released Wednesday, Moody’s said the spending surge is forcing even the most cash-rich corporations, including Alphabet and Microsoft, to lean heavily on debt, stock sales and off-balance-sheet arrangements. The agency said these moves threaten credit quality across the six companies it tracks: Microsoft, Amazon, Alphabet, Meta, Oracle and CoreWeave. Moody’s projects capital expenditures will reach $785 billion in 2026 and approximately $1 trillion in 2027.
The agency framed the underlying change as structural. Historically these companies operated asset-light models built around software, intellectual property and scalable cloud services requiring modest capital investment. Moving to an asset-heavy model, Moody’s wrote, requires unprecedented levels of investment and capital raising.
Generative AI demands a physical footprint that software never did — warehouses filled with expensive, energy-intensive servers and chips.
The leverage figures are the part worth reading closely. Direct debt across the six firms has reached $460 billion, while off-balance-sheet data center lease commitments have grown to $1.2 trillion. Alphabet announced an $85 billion stock sale last month. Moody’s noted that AI hardware and infrastructure require large upfront outlays while returns are realized over long periods, which pressures free cash flow across the sector, and that hyperscalers rely primarily on long-term off-balance-sheet financing structures to keep direct debt off their books.
Meta completed its first bond offering in years, and Alphabet, historically resistant to debt financing, has explored credit facilities to preserve cash flexibility.
Moody’s was careful to separate the strong from the exposed. The agency stressed that Microsoft, Alphabet, Amazon and Meta remain among the strongest corporate borrowers globally, with substantial liquidity and resilient cash generation from mature cloud, advertising and enterprise software businesses, and said it does not see immediate pressure on their investment-grade ratings. The greater vulnerability sits with companies at the lower end of investment grade. Oracle, which has expanded AI infrastructure spending aggressively to compete with larger cloud providers, carries a Baa2 rating with a negative outlook — two notches above speculative grade. CoreWeave faces steeper financing challenges still.
The competitive structure is what makes the trajectory difficult to reverse. No single participant can easily pull back: Amazon Web Services cannot afford to fall behind on AI capability without risking its cloud position, and Google is defending its core search business against AI-driven alternatives. Retreating carries competitive cost; continuing carries balance sheet cost.
For the tri-state region, the report matters for reasons beyond equity exposure. Off-balance-sheet lease commitments of the scale Moody’s describes represent contracted, long-dated obligations to data center developers and their financing partners — a category of construction and real estate activity with meaningful presence in New Jersey and the broader Northeast corridor. Credit deterioration among tenants of that quality would change underwriting assumptions across that asset class.
Regional banks and credit funds with exposure to data center construction lending, power infrastructure, or specialty contractors serving that pipeline should note the distinction Moody’s draws. The investment-grade giants are not the risk. The risk sits with the tier of operators financing similar buildouts from weaker balance sheets, and with the contractors and suppliers whose receivables concentrate there.
Moody’s characterized the change in these companies’ balance sheets as material, and raised the question of whether the level of spending is sustainable relative to the revenue it eventually produces. That question gets a partial answer this week, when four of the six report quarterly results.
JBizNews Desk | New York
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