AI Infrastructure Investments Enter Credit Expansion Phase — Meta and Microsoft Utilize Debt for Accelerated Development

On July 29, 2026, Meta announced its Q2 financial results, reporting revenues of $60.8 billion (a 28% year-on-year increase) and operating cash flow of $31.86 billion (a 25% year-on-year increase), showcasing robust business performance. However, capital expenditures in the same quarter reached $31.08 billion, causing free cash flow to plummet by 91% year-on-year to $784 million.

This contrast in figures is not unique to Meta but reflects a broader trend across major U.S. tech companies. The massive infrastructure investments required for AI computing power (compute) are reshaping corporate financial structures.

A Scale Beyond Operating Cash Flow

Meta’s long-term debt rose from $58.74 billion at the end of 2025 to $83.66 billion, with $24.91 billion raised through corporate bonds in Q2 alone. While Meta revised its 2026 capital expenditure guidance from $125–145 billion to $130–145 billion, this still represents an increase from the $115–135 billion range set earlier this year.

One noteworthy strategy is Meta’s funding approach for its data center in El Paso, Texas. The project, with a total development cost of approximately $14 billion, sees BlackRock-managed funds contributing 80% and Meta 20%. Of this, $12.5 billion is being secured through project debt. Meta is responsible for construction and management, and upon completion, the entire campus will be leased under a 20-year agreement (initial four years with four renewals). The lease includes a residual value guarantee of approximately $13 billion, meaning Meta may cover any shortfall if the asset’s value drops below this threshold within the first 16 years.

This is not Meta’s first use of such a model. A similar approach was employed for its Hyperion data center in Louisiana in 2025, involving a $27 billion development cost, with Blue Owl contributing 80% and Meta 20%. Collectively, the two projects amount to $41 billion.

These transactions effectively transform one-time capital expenditures into multi-year obligations, such as rent, guarantees, and contractual liabilities. As of the end of June, Meta held $90.26 billion in cash, cash equivalents, and securities, and its advertising business continues to grow rapidly. However, the scale of its current AI investments and construction timelines make it challenging to fund these projects solely through operating cash flow.

$194 Billion in Corporate Bond Issuance

Meta is not an isolated case. According to data from LSEG, as of July 7, 2026, Amazon, Alphabet, Meta, and Oracle had issued approximately $194 billion in corporate bonds, a 79% increase compared to the entire year of 2025. Goldman Sachs estimates that five hyperscale cloud providers, including Microsoft, could issue $250 billion in corporate bonds this year, potentially reaching $400 billion by 2027.

Fundraising remains feasible, but costs are rising. The median spread over risk-free rates for 2- to 4-year corporate bonds among these companies has increased from 30 basis points in 2025 to 40 basis points. For long-term bonds exceeding 20 years, the median spread has risen from 108.5 basis points to 118 basis points. Bid-to-cover ratios have dropped from around 5x in February to below 2x in July, indicating increased supply is driving up financing costs.

Amazon began issuing $37 billion in corporate bonds in March 2026, raising an additional $25 billion in July. Oracle plans to secure $43 billion in debt and $5 billion in equity for FY2026, with free cash flow falling to negative $23.7 billion against an operating cash flow of $32 billion. Oracle anticipates raising another $40 billion in FY2027.

First Warning of Downgrades

On July 9, 2026, S&P downgraded Oracle’s credit rating from BBB to BBB-, the lowest investment-grade level, with a stable outlook. The downgrade was not caused by a lack of orders but by rising leverage stemming from massive upfront investments and long-term lease agreements, coupled with persistent negative free cash flow.

Oracle’s remaining performance obligations have reached $638 billion, with S&P estimating that nearly half of this is tied to OpenAI. Should customers fail to fulfill their commitments, Oracle risks being saddled with data center leases that are difficult to resell. This makes Oracle one of the first major tech companies to face a clear credit downgrade amid the current AI infrastructure expansion.

Microsoft’s Hidden Lease Liabilities

Microsoft presents a different scenario. In Q4 FY2026, its capital expenditures surged by over 70% year-on-year to $41 billion. Operating cash flow stood at $55.44 billion, maintaining $19.6 billion in free cash flow. Annual capital expenditures totaled approximately $145 billion.

A larger figure lies hidden in its lease agreements. As of the end of June, Microsoft had committed to $329.1 billion in data center leases that have yet to take effect, more than doubling from $92.7 billion a year prior. These leases, set to begin between FY2027 and FY2033, lock in future cash outflows for up to 20 years.

Microsoft has also extended the estimated duration of long-term data center leases from 15 to 25 years, reducing its 2026 capital expenditure estimate from $190 billion to $175 billion. While this adjustment lowers disclosed figures, it does not eliminate the underlying obligations.

Compute Contracts as Financial Collateral

The core of AI financing expansion lies in the transformation of computing power from a technical resource to financial collateral. As of March 2026, CoreWeave held $11.8 billion in term loans, $6.4 billion in bonds, and $4.7 billion in equipment financing. These loans are secured not only by GPUs but also by long-term “take-or-pay” agreements with clients like Microsoft. Future computing power revenues are essentially being monetized upfront for construction funding.

Oracle is also encouraging customer participation in funding. By the end of FY2026, customers had prepaid or directly provided $75 billion worth of GPUs for major AI contracts. Cloud computing contracts are beginning to function as alternatives to traditional bank loans.

Chip manufacturers are also extending credit downstream. AMD has provided up to $4.1 billion in guarantees for partners’ data center leases. Alphabet’s default guarantees for third-party TPU operators have surged to $44 billion from $6.5 billion as of September last year, marking a nearly sevenfold increase.

The Financial Times reported that NVIDIA is effectively a tenant of Hut 8’s Texas data center, with a base contract value of $19.6 billion. The GPUs may be subleased to cloud operators, expanding NVIDIA’s role from chip supplier to credit intermediary.

A financing chain is forming among suppliers, cloud operators, data centers, and model developers. Contracts guarantee loans, loans build data centers, data centers purchase GPUs, and GPUs underpin the next wave of compute contracts.

Different Approaches in China

The financing strategies of U.S. and Chinese companies diverge significantly. In September 2025, Alibaba issued $3.2 billion in zero-coupon convertible bonds, allocating around 80% of the funds to data center expansion, technology upgrades, and cloud services. Two months earlier, it had issued $1.5 billion in exchangeable bonds.

While U.S. tech firms rely heavily on corporate bonds, project debt, and private credit, Chinese companies continue to prioritize convertible bonds, bank loans, and operating cash flow as their primary funding sources.

Bond Markets Begin Pricing Risk

As of July 29, Oracle’s five-year credit default swap (CDS) spread was approximately 200 basis points, while Meta’s was around 93, NVIDIA’s 78, and the investment-grade corporate bond CDS index stood at about 53. CDS is akin to default insurance for corporate bonds, with higher spreads indicating greater risk.

In Q2, technology-related CDS trading volumes surged to $650 million, a sixfold increase year-on-year, as bond investors sought greater protection.

Meta’s near-zero free cash flow, Oracle’s downgrade to the lowest investment grade, and rising credit risk prices for NVIDIA reflect three risks: cash flow coverage, mismatches between customers and leases, and suppliers providing credit downstream for financing.

The bond market isn’t declaring AI investments a failure, but it is demanding higher premiums for uncertain returns. In Meta’s El Paso project, a residual value guarantee of approximately $13 billion means that if AI demand underperforms, the company might have to cover rental costs or asset depreciation losses. The risk has shifted to a structure where project companies own the data centers, Meta assumes usage obligations, and bond investors bear the credit risk.

Editorial Opinion

In the short term, issuing corporate bonds and utilizing project finance are effective ways to alleviate financial pressure during construction phases. However, this earnings season has revealed that Oracle’s downgrade is not merely a temporary dip in financial metrics but an indication of structural risks in AI infrastructure investments. Over the next 3–6 months, similar rating actions could potentially affect Microsoft and Alphabet. Investors should keep a close eye on trends in the CDS market.

From a long-term perspective, the observed “credit expansion for accelerated investments” marks a turning point where computing power transitions from being a technological resource to a financial product. As loans collateralized by GPUs and financing based on take-or-pay agreements become commonplace, the AI infrastructure market will become increasingly exposed to fluctuations in capital markets. Over the next 1–3 years, rising interest rates and the potential materialization of lease default risks could trigger industry-wide restructuring.

As an editorial team, we acknowledge the positive data highlighting the job creation and economic benefits of AI investments, as reported in our earlier article about the 10% employment growth driven by high-intensity investments by AI-adopting companies.

References

• “AI大厂开始借钱烧算力”, by 强调Next — 钛媒体, 2026-07-30T10:18:57.000Z (ARR)
• Source URL: https://www.tmtpost.com/8084949.html