Alphabet Inc. Class C (GOOGL.US) stocks and bonds are both plummeting! AI spending fears are weighing down the stock price, with the "bond of the century" simultaneously dropping below face value by 90%.

In February this year, when Alphabet Inc. Class C parent company Alphabet (GOOGL.US) issued a 10 billion pound, 2126-year maturity century bond in the British pound market, the market gave nearly 10 times oversubscription. At that time, this was the first time a technology company had issued a century bond since Motorola in 1997, and was seen as a milestone event in the wave of investment in AI infrastructure. Five months later, the price of this bond has fallen to 89.978 pence for the first time, dropping below 90% of its face value. At the same time, the price of Alphabet Inc. Class C shares fell after the earnings announcement, with a drop of about 7% in early Thursday trading. Price Collapse: Evaporating Over 10% in Five Months Data shows that the century bond with a coupon rate of 6.125% was quoted at 89.978 pence on Thursday. Since its issuance in February at a slightly below face value price, its value has dropped by more than 7% to 10%. Its risk premium relative to the risk-free benchmark rate has reached as high as 139.8 basis points at one point. This decline is extremely rare in the investment-grade corporate bond market. Lana Vaselova, manager at Cbonds, said, "The decline is not entirely surprising - century bonds are extremely sensitive to changes in interest rates, which is why they were so attractive when interest rates seemed to be going down." However, what really makes the market cautious is that Alphabet's credit quality has not deteriorated. This is not a story of Alphabet Inc. Class C suddenly becoming a high-risk borrower, but rather the impact of duration risk. Triple Impact of Price Collapse: Duration, Supply, and Resonance of AI Doubts First Impact: Extreme Duration Risk. The modified duration of the century bond means that for every 1 percentage point increase in yield, the bond price may fall by nearly 15 pence. Since its issuance in February, there has been a significant change in the global long-term interest rate environment. After the US-Iran conflict, investors reassessed long-term inflation expectations. The UK 10-year government bond yield hovered around 5%, with the 30-year yield reaching as high as 5.78% - for a century bond, such a change in interest rate environment is enough to cause devastating price impact. Second Impact: Unprecedented supply peak, Alphabet is not alone. So far this year, six "AI super-scale computing merchants" including Alphabet, Amazon.com, Inc., Meta, Oracle Corporation, NVIDIA Corporation, and SpaceX have collectively issued approximately $244 billion in bonds in the global bond market, an increase of more than 14 times from $17 billion in 2024. In just the past few weeks, NVIDIA Corporation, SpaceX, and Amazon.com, Inc. have issued a total of about $75 billion in bonds. Among the ultra-large-scale cloud services bonds issued since early 2025, about 79% of the bonds have experienced an increase in credit spreads compared to the initial trading day, with an average price drop of 3.3 points from the issue price. "No matter where they are issued, these bonds are among the worst performers". Brin Jones, head of fixed income at Rathbones, pointed out, "When supply increases, prices will fall". Third Impact: Doubts about the return on AI capital expenditure. On July 23, Alphabet released its second-quarter report and raised its full-year capital expenditure forecast from a range of $180 billion to $190 billion to $195 billion to $205 billion. Alphabet Inc. Class C cloud revenue surged 82% to $24.8 billion year-on-year, but the company burned through $5.9 billion in cash in the quarter - the first time in history that free cash flow has been negative. This is exactly what bond investors are most worried about: when the world's most profitable company starts burning cash to the point of negative cash flow, how long will the capital return cycle of AI infrastructure be? CEO Pichai admitted at the earnings call that the return on AI is still in its early stages. For holders of century bonds, "early stage" means uncertainty about cash flows for the next several decades. Market Chain Reactions: From Alphabet to the Entire Ultra-Large-Scale Block The decline in Alphabet's century bond is not an isolated event. Data shows that long-term bonds issued by Alphabet and Amazon.com, Inc. were among the worst performing bonds in the euro investment-grade bond market on Thursday. Michael Teig, credit strategist at Intesa Sanpaolo, warned in a report: "The recent widening of credit spreads for ultra-large-scale corporate bonds has reignited debate among investors about the viability of their business models, especially in the case of ample capital expenditure." JPMorgan Chase said the widening of credit spreads for ultra-large cloud computing company bonds is the result of high-grade bond investors trying to digest the accelerated pace of bond issuances. Barclays warned that as "concentration risk continues to rise," investors should not blindly chase these bonds as credit spreads widen. From oversubscription at 10 times to falling below 90 pence in five months, Alphabet's century bond has gone through market's most brutal repricing of its AI narrative. Under the triple impact of the century duration of century bonds and the "century duration" of century bonds hitting the AI's "century story", the market is choosing to vote with its feet - at least for now. Michael Campion, portfolio manager at PGIM, summed it up: The core consideration of investment-grade bond investment is the issuer's ability to repay debt, and the pricing anchor for bond allocation is the company's real cash flow, not future growth expectations. When the "century story" of AI collides head-on with the "century duration" of century bonds, the market chooses to vote with its feet - at least for now.