Moody’s Ratings, one of the three major U.S. credit rating agencies, warned in a research note this week that the rapid buildout of artificial intelligence infrastructure is draining free cash flow and increasing balance-sheet risk at six large technology companies, according to CNBC.

“The transition from asset-light to asset-heavy models requires unprecedented levels of investment,” Moody’s wrote in the Wednesday note. The agency said the shift threatens credit quality at Microsoft, Amazon, Alphabet, Meta, Oracle, and CoreWeave.

Moody’s expects the six companies’ combined capital expenditures to reach $785 billion in 2026 and rise to about $1 trillion the following year. Their direct debt has reached roughly $460 billion. Shortly after the note circulated, Alphabet’s quarterly results showed how the pressure from AI-related spending is appearing in real time.

Alphabet shows the AI cash squeeze

Alphabet reported second-quarter results after the market close on July 22, with revenue rising 24% to $119.8 billion and Google Cloud revenue increasing 82% to $24.8 billion, according to the earnings call transcript. Operating income was $40.8 billion, representing a 34% margin.

The company’s capital spending reached $44.9 billion, exceeding operating cash flow of $39.1 billion. That left Alphabet with negative free cash flow of $5.9 billion, its first negative quarter since the company went public in 2004. For a firm that has historically generated more cash than nearly any publicly traded company, the result underscores how AI infrastructure costs are reshaping even the strongest balance sheets in the sector.

Chief Financial Officer Anat Ashkenazi raised full-year capital expenditure guidance to a range of $195 billion to $205 billion, up from the prior quarter’s estimate of $180 billion to $190 billion. She also indicated that capital spending would increase significantly again in 2027.

Alphabet shares fell more than 4% in after-hours trading, and buybacks were halted. The company still has two financial cushions: free cash flow remains positive on a trailing-12-month basis at about $53 billion, and Alphabet holds roughly $240 billion in cash and marketable securities.

Oracle and CoreWeave face sharper credit pressure

Moody’s said Microsoft, Alphabet, Amazon, and Meta have some of the strongest balance sheets of any companies worldwide, making an immediate downgrade highly unlikely for those firms. The greater pressure is concentrated on the two lower-rated companies in the group.

Oracle has a Baa2 rating with a negative outlook, placing it two notches above junk status. CoreWeave is rated Ba3, in high-yield territory, and finances its Nvidia GPU servers through complex debt structures. As Cryptopolitan reported, Oracle’s unfulfilled performance obligation was recorded at $523 billion, almost nine times its annual revenue.

Oracle and CoreWeave are also positioned on the other side of Alphabet’s supply constraints. Alphabet said it plans to increase its use of third-party capacity in the third quarter as a bridge while it continues building internal infrastructure. The company named CoreWeave and Nebius among the providers. Shares of both companies rose 4% to 5% after the disclosure.

Data center leases add to debt-like obligations

Moody’s said the six companies have committed a total of $1.2 trillion in leases, including $820 billion tied to data center construction that the agency views as debt-like liabilities.

As Cryptopolitan previously reported, Moody’s analysts, including David Gonzales and Alastair Drake, calculated the unstarted-lease figure at $662 billion in February. That figure has increased by roughly 24% in five months, and the off-balance-sheet total is now nearly twice the group’s combined direct debt.

A separate analysis by Nikkei found that five of the companies had committed $1.65 trillion to AI-related investments that were not recorded as debt under current accounting standards.

The Bank for International Settlements, the Basel-based institution that coordinates policy among central banks, has also said some financing connected to the AI infrastructure buildout resembles shadow borrowing.

Moody’s says AI spending is becoming circular

Hyperscalers have pointed to large contract backlogs as evidence of strong demand. Moody’s noted, however, that some of that demand comes from pre-IPO AI labs such as OpenAI and Anthropic, which have also received major investments from the same technology giants selling them cloud capacity.

Moody’s described this as a circular AI ecosystem. The concern is that the largest companies in the sector are becoming increasingly interconnected through the same customers, financing arrangements, and expectations for future AI demand.

Alphabet’s cloud backlog stood at $514 billion, up more than $50 billion from the previous quarter. The company is also renting Nvidia chips from SpaceX for about $920 million per month to meet demand.

According to Moody’s, “Investors will increasingly ask whether the spend generates sufficient returns.”