Key Highlights

  • Moody's projects hyperscaler capital expenditures will reach 785 billion dollars in 2026 and about 1 trillion dollars next year.
  • Direct debt across the six tracked companies has reached approximately 460 billion dollars.
  • Lease commitments across the group have ballooned to 1.2 trillion dollars, with 820 billion dollars tied to leases not yet started.
  • Microsoft, Alphabet, Amazon and Meta retain among the strongest corporate balance sheets in the world despite the warning.

A Structural Shift From Asset-Light to Asset-Heavy Business Models

Moody's Ratings warned that the race to build artificial intelligence infrastructure at a trillion-dollar annual clip is eroding free cash flow and increasing balance-sheet risk at hyperscalers, forcing even the world's most cash-rich corporations to lean heavily on debt, stock sales and off-balance-sheet arrangements to fund their AI ambitions. The ratings firm noted that these companies previously relied on asset-light structures centred on software, intellectual property and scalable cloud services requiring comparatively modest capital investment.

Moody's said the transition from these asset-light models to asset-heavy infrastructure now requires unprecedented levels of investment and capital raising, a shift the firm said threatens credit quality across the six companies it tracks: Microsoft, Amazon, Alphabet, Meta, Oracle and CoreWeave. The firm projects capital expenditures for physical assets such as data centers will reach 785 billion dollars in 2026 before climbing to approximately 1 trillion dollars the following year.

Rising Debt and Off-Balance-Sheet Leasing Fuel the Buildout

Direct debt across the six hyperscalers has reached approximately 460 billion dollars, according to Moody's, with companies increasingly tapping public markets for additional capital, including Alphabet's announcement last month of an 85 billion dollar equity sale. Because AI hardware requires massive upfront investment while revenue materialises over a longer time horizon, the report noted that free cash flow across the sector is coming under sustained pressure.

To keep direct debt off their balance sheets, hyperscalers have increasingly relied on off-balance-sheet financing, primarily through long-term data center leases. Moody's said lease commitments across the group have ballooned to 1.2 trillion dollars, with more than 820 billion dollars tied to leases that have not yet started, meaning the underlying data centers are still under construction. While these obligations do not appear as traditional debt, Moody's characterised them as debt-equivalent liabilities that will bind companies to significant future rent payments.

Strongest Balance Sheets Remain Insulated, but Lower-Rated Firms Face More Immediate Pressure

Despite the warning, Moody's noted that Microsoft, Alphabet, Amazon and Meta retain among the strongest corporate balance sheets in the world, making it unlikely their investment-grade ratings face imminent threat even as free cash flow tightens and borrowing buffers shrink. The more immediate pressure, according to the report, is concentrated on lower-rated entities such as Oracle, which carries a Baa2 rating with a negative outlook, placing it just two notches above junk status, and specialised AI cloud provider CoreWeave, which operates in the high-yield market with a Ba3 rating and relies on complex private debt structures to finance its GPU hardware fleets.

Moody's also flagged structural circularity within the broader AI ecosystem, noting that some of the multibillion-dollar backlogs reported by hyperscalers stem from strategic deals with pre-IPO AI labs including OpenAI and Anthropic. These firms have invested billions into AI labs that, in turn, spend heavily on cloud computing from the same hyperscaler companies, creating overlapping dependencies that Moody's said heighten risk given how many of the industry's largest companies now rely on the same customers and the same assumptions about future AI demand.

Conclusion

Moody's assessment suggests the technology industry's financial profile is undergoing a structural change unlike anything seen during the cloud computing era, even as robust AI demand, growing cloud businesses and hundreds of billions of dollars in long-term customer contracts continue to support largely strong credit profiles across the sector. The ratings firm indicated that investors will increasingly focus on these companies' ability to generate an adequate return on their AI investments, suggesting the durability of current spending levels may depend heavily on how quickly that return materialises relative to the scale of capital being deployed.