Google (GOOGL.US) hit by both stock and bond sell-off! AI spending fears drag down the stock price, "Century Bonds" simultaneously drop below 90% of face value

According to Zhihui Finance APP, in February this year, when Alphabet (GOOGL.US), Google's parent company, issued a £1 billion century bond maturing in 2126 in the sterling market, the offering was nearly 10 times oversubscribed. At the time, it was the first century bond issued by a tech company since Motorola in 1997, and was seen as a milestone event amid the AI infrastructure investment wave. Five months later, the price of this bond has dropped to 89.978 pence—the first time it has fallen below 90% of its face value. Meanwhile, Alphabet’s stock price dropped after its earnings announcement, and as of press time, shares were down about 7% in early Thursday trading.

Price Collapse: Over 10% Evaporated in Five Months

Data shows that as of Thursday, the 6.125% coupon century bond was quoted at 89.978 pence. Since being issued in February at just below par, its value has dropped by over 7% to 10% cumulatively. Its risk premium over the risk-free benchmark rate once soared as high as 139.8 basis points.

This kind of decline is extremely rare among investment grade corporate bonds. Cbonds manager Lana Vaselova said bluntly: "The drop is not entirely surprising—century bonds are extremely sensitive to interest rate changes, which was exactly what made them so attractive in the first place when rates seemed likely to fall."

However, what truly worries the market is that Alphabet's credit quality has not deteriorated. This is not a story about Google suddenly becoming a high-risk borrower, but about duration risk taking effect.

Triple Shock Behind the Price Collapse: Resonance of Duration, Supply, and AI Concerns

The first: Extreme duration risk. The modified duration of century bonds means that for every 1 percentage point increase in yield, the bond price could fall by nearly 15 pence. Since February, the global long-term interest rate environment has changed significantly. The conflict between the US and Iran prompted investors to reassess long-term inflation expectations. The yield on UK 10-year gilts has hovered near 5%, with 30-year yields reaching as high as 5.78%—for a century bond, changes in this interest rate environment are enough to cause a devastating blow to prices.

The second: An unprecedented flood of supply—Alphabet is not alone. Since the beginning of this year, six “AI hyperscalers”—Alphabet, Amazon, Meta, Oracle, Nvidia, and SpaceX—have issued a total of about $244 billion in bonds in global markets, a more than 14-fold increase from $17 billion in 2024. In the past few weeks alone, Nvidia, SpaceX, and Amazon have issued around $75 billion in bonds.

Of the hyperscaler cloud service bonds issued since early 2025, about 79% have seen their credit spreads widen compared to listing day, and their prices have fallen an average of 3.3 points from issue price. "Wherever these bonds are issued, they are among the worst performers." Rathbones head of fixed income Bryn Jones commented, "When supply increases, prices go down."

The third: Doubts about the return on AI capital expenditures. On July 23, Alphabet released its Q2 earnings and raised its full-year capital spending forecast from $180-190 billion to $195-205 billion. Google Cloud revenue soared by 82% year-over-year to $24.8 billion, but the company used up $5.9 billion in cash during the quarter—marking the first time in history that its free cash flow turned negative.

This is exactly what bond investors fear most: when one of the world’s most profitable companies starts “burning cash” to the point of negative cash flow, how long will it take for capital returns from AI infrastructure? CEO Sundar Pichai admitted on the earnings call that AI returns are still in the early stages. For holders of the century bond, “early stages” means decades of cash flow uncertainty ahead.

Market Chain Reaction: From Alphabet to the Entire Hyperscaler Sector

The decline in Alphabet’s century bond is not an isolated incident. Data show that the long-term bonds issued by Alphabet and Amazon were among the worst performing in the euro investment grade bond market on Thursday.

UniCredit Bank credit strategist Michael Teig warned in a report: "The recent widening of credit spreads in hyperscaler bonds has rekindled debate among investors about the viability of their business models, especially as their capital expenditures remain robust."

J.P. Morgan stated that the current widening in hyperscaler cloud bond spreads is the result of high-grade bond investors trying to digest the increased issuance pace. Barclays, meanwhile, warned that given “rising concentration risks,” investors should not blindly chase these bonds just because the spreads have widened.

Alphabet's century bond went from 10 times oversubscribed to below 90 pence in just five months. In these five months, the US-Iran conflict reshaped global interest rate expectations, $244 billion of AI hyperscaler bonds flooded the investment grade market, and Alphabet delivered its first-ever negative free cash flow report. Under the triple shock, the century bond once chased after by pension funds and insurers is now undergoing the market’s harshest revaluation of its AI narrative.

PGIM portfolio manager Michael Campion summed it up: the core consideration for investment grade bond investing is the issuer's debt service ability, and the pricing anchor for credit allocation is the company’s actual cash flow—not distant growth expectations. When AI's “century story” collides with the “century duration” of a hundred-year bond, the market votes with its feet—at least for now.