The Economic Times·2025-11-22 01:52Core Insights - Major technology companies are significantly increasing their spending on AI while simultaneously raising record levels of debt, marking a departure from previous practices where companies utilized their cash reserves for capital expenditures [1][9][14] - The shift towards leveraging debt introduces new risks and volatility in the tech sector, as highlighted by the comments from industry experts [2][7][16] Industry Trends - The tech industry's risk profile has evolved, with a broader range of companies, including those with weaker balance sheets, now participating in AI investments [3][7] - The forward 12-month price-to-earnings ratio of the Bloomberg Magnificent 7 Index has decreased to its lowest in over two months, aligning with its five-year average [9][18] Company-Specific Developments - The five major AI spenders—Amazon, Alphabet, Microsoft, Meta, and Oracle—have collectively raised $108 billion in debt in 2025, more than three times the average of the previous nine years [9][14] - Oracle's stock has experienced a significant decline of 40% since reaching a record high, as investors reassess the impact of its aggressive capital expenditures on its balance sheet [10][13] - Oracle forecasts $35 billion in capital expenditures for the current fiscal year, with free cash flow expected to be negative $9.7 billion, marking a concerning trend for its financial health [13][14] Market Reactions - The tech sector has shown volatility, with stock prices fluctuating significantly in response to earnings reports and investor assessments of capital requirements for AI [6][18] - Despite the increased leverage, investor sentiment towards megacap tech stocks remains generally positive due to their strong earnings growth and competitive positions [16][17]