Amazon Plans $15 Billion Bond Sale in the US for AI
Synopsis
Meta Excerpt (90 words): Amazon will raise $15 billion by selling bonds for the first time in three years. The money will help build artificial intelligence systems and data centres. Big technology companies are spending hundreds of billions on AI infrastructure this year. Amazon expects to spend $125 billion on equipment and buildings in 2025. The company recently signed a $38 billion deal with OpenAI to boost its cloud business after losing ground to Microsoft and Google in the AI race. This year, the company plans to invest close to $125 billion in capital expenditures.
Amazon is planning to borrow $15 billion by selling bonds to investors. It is the first time in three years that the company has borrowed money this way in the United States. The company filed papers with the Securities and Exchange Commission on Monday. Amazon wants the money to build more computers and systems for artificial intelligence. These big tech firms are pumping huge sums of dollars into artificial intelligence (AI) tools and the hardware required to operate them.
Technology Companies Taking on Large Debts
Several major technology companies are currently taking on billion-dollar loans. They use the money to construct new data centres and to acquire high-end computers. Increasingly, people want to use artificial intelligence programs. And these need special computers, which are expensive. Amazon is not the only company doing this. Last month, Meta Platforms said it would borrow up to $30 billion. Meta owns Facebook and Instagram. Another company that makes cloud computing software is Oracle. Reports say Oracle also wants to borrow $15 billion soon.
Morgan Stanley is a big bank that tracks how companies spend money. They think major technology companies alone will spend $400 billion this year just on artificial intelligence systems, including Meta, Amazon, and Alphabet, which owns Google. These companies race to build the best AI tools; whoever gets to build the best systems first will have the advantage over their competitors. This is why they are willing to spend so much money right now, even though it is very expensive.
How Amazon Will Use the Money
Amazon filed papers to sell six different types of bonds. Bonds are a kind of loan that investors buy. The company promises to pay the money back later, with interest. Amazon can use the money it raises for many different things. It may buy other businesses. It could spend the money on buildings and equipment. Amazon might also use some of it to buy back its own stock shares. The filing does not say exactly how much will go to each purpose.
Investors wanted to buy a lot of Amazon bonds. One time, about 80 billion dollars of investors wanted to buy the bonds. That's much more than the 15 billion dollars Amazon is selling. When many people want to buy something, the price goes up. For Amazon, this meant it could offer to pay less interest. The longest bonds Amazon is selling will be paid back in 40 years. First, Amazon was going to pay 1.15 percentage points more than government Treasury bonds. But because so many investors wanted them, Amazon only had to offer 0.85 percentage points more.
Amazon Spending Big on Artificial Intelligence
Amazon has been investing more and more money into artificial intelligence. This year, the company plans to invest close to $125 billion in capital expenditures. Capital expenditures refer to the money that is invested in tangible assets like buildings, computers, and equipment. The company is also willing to invest more than that next year. One of the recent major moves by Amazon was a $38 billion deal with OpenAI. OpenAI is the organisation behind the making of ChatGPT. The cloud computing business, which is referred to as Amazon Web Services, will be the one to benefit from this arrangement.
Amazon Web Services allows other companies to rent computing power and storage space. It is a big part of how Amazon makes its money. But Amazon has been losing some of its customers to Microsoft and Google. Both those companies also offer cloud computing. The deal with OpenAI should help Amazon compete better. More companies will want to use Amazon's cloud services if they can get access to good AI tools there. That is why Amazon is willing to spend so much money on artificial intelligence right now.
Companies Are Racing to Develop AI Tools
The technology industry is currently going through a big change. Artificial intelligence is becoming important for all kinds of businesses. Companies that lag in AI might just lose customers to competitors. That's probably why so many technology companies are borrowing money and spending it quickly. They want to build the best systems first before other companies. Amazon borrowed the money through bonds instead of using the cash that it already has. This lets the company keep its cash for other needs while it still secures money to build AI systems. The bond sale shows how serious Amazon is about competing in artificial intelligence.
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