Microsoft issued its first investment-grade bonds in the U.S. in five years, raising $25 billion in debt financing amid spending in the artificial intelligence sector.
Microsoft priced the transaction on October 29, 2026, and the issuance is expected to be completed on Wednesday, November 4, according to the company's SEC filing.
The company received strong demand for the debt issuance, with orders reaching approximately $115 billion, roughly 4.6 times the size of the deal, according to Bloomberg.
The transaction involved up to 10 tranches, maturities being between two and 40 years, and hence the longest maturity date would be 2066. Dataconomy indicated that it consisted of eight fixed-rate bonds and two floating-rate bonds. According to the filing, Microsoft raised $19 billion in fixed rate bonds and $6 billion in floating rate bonds, and the highest fixed rate being 6.35%.
This offering was managed by Wells Fargo, JPMorgan Chase and UBS Group. Bloomberg reported initial price talks for the longest bond being 1.35 percentage points higher than Treasuries.
The previous bond offering by Microsoft was in 2017, and this one involved $17 billion in seven tranches. It should be noted that among publicly held companies in the USA, Microsoft and Johnson & Johnson are the only ones having AAA credit ratings from both Moody's and S&P Global.
Microsoft has stated that the net proceeds will be used for general corporate purposes, which may consist of capital expenditure and working capital and debt repayment.
The company has not allocated any funds specifically towards AI and data centers despite these being among its key areas of investment focus, as mentioned by NewsBytes.
The background to this is increasing expenditure. In the quarter ending September 30, Microsoft recorded capex including finance leases of $45.2 billion, up 30% from a year ago.
The target for capital expenditure for calendar year 2026 is $170 billion, and expenditure is projected to exceed $50 billion in the December quarter, as per Dataconomy and Pragativadi. Microsoft is scaling up capacity for its AI customers like Anthropic and OpenAI.
The business of Microsoft is doing well. For the September quarter, Microsoft reported a 19% growth in revenues to $92.3 billion, and Azure revenues grew by 48% to $33.2 billion, as per Benzinga.
The operating cash flow for the company was $58 billion, while free cash flow decreased by 27% to $18.6 billion. As of June 30, 2026, Microsoft held cash and short-term investments amounting to $76.8
This has raised the issue of why a company with so much money is opting to borrow.
According to analysts cited by sources like StartupTalky, borrowing allows Microsoft to secure funds for its data centers and semiconductors without dipping into its cash reserves as much and having options.
In addition, bonds allow companies to allocate costs of infrastructure over decades through bond markets.
Microsoft is the latest big tech company making use of the bond market. The latest debt issuance comes after Alphabet sold $25 billion worth of debt in August, which was its first debt issuance as a blue-chip hyperscaler.
In addition, Amazon and the AI cloud company, CoreWeave, have tapped into the bond market. Oracle, on its part, is considering raising $10 billion through new debt. As per Nuveen's Richard Cheng, investors were also looking forward to Meta's bonds but their absence tightened spreads on AI bonds.
According to Benzinga, credit investors are becoming more selective, and the interest in the 40-year bond will reveal how much extra yield investors require to finance the AI infrastructure.
The size of the order book indicates that there is a good deal of appetite among investors for high quality tech credit, even if the long dated part is the riskiest if interest rates and/or AI performance disappoints.
Some sources made a connection between this bond issue and the larger picture at the firm.
BusinessToday highlighted that the bond issuance occurred after a buyout of about 60,000 staff members, which means that Microsoft is making efforts not only to invest in AI but to reduce the labor costs at the same time. I was unable to find any information about this buyout from Microsoft.
The major concerns will be the speed at which the company manages to convert investments into revenue and the ability of free cash flows to recover.
Another question is the issuance of additional debts and how the major credit rating agencies perceive the increase in the company's leverage.
Now, the AAA ratings help Microsoft get financing
