Microsoft prices $25B in 10 series, its first US bond sale since 2017

Microsoft (Nasdaq: MSFT) priced $25 billion of notes on October 29 in 10 series that mature between 2028 and 2066, according to the pricing term sheet it filed with the SEC. Eight pay fixed coupons from 4.85% to 6.35%, two float over the Secured Overnight Financing Rate, and the sale settles on November 4.

It is Microsoft's first US investment-grade bond sale since 2017, when it raised $17 billion, Bloomberg reported. Orders peaked at $115 billion, or 4.6 times the deal, according to people familiar with the matter cited by Bloomberg. Microsoft has not published a figure for demand.

What Microsoft sold

The two largest pieces are $4 billion each, due in 2036 and 2056. Weighted by size, the fixed notes carry a coupon of 5.58% and run 14.2 years, by SaasBuzz's calculation from the term sheet. Spreads over Treasuries run from 0.25 percentage points on the 2028 notes to 1.05 points on the 2066 notes.

Source: Microsoft's pricing term sheet, filed October 30, 2026. Spreads in percentage points, over Treasuries for fixed notes and over SOFR for floating notes. All notes mature on November 3 of the year shown.

The fixed notes will cost about $1.28 billion a year in interest, before the floating pieces. After the underwriters' discount, Microsoft receives $24.9 billion before expenses, by the term sheet's own figures. Moody's rates the notes Aaa and S&P rates them AAA.

The longest notes priced tighter than first offered. Bloomberg reported that the 2066 spread came in by as much as 0.3 points from initial talk, against about 1.33 points on Alphabet's lower-rated 40-year bonds in Trace pricing data.

What the money is for

The prospectus supplement does not name AI as a use of the money. It says the proceeds go to general corporate purposes, which may include working capital, capital expenditures, share buybacks, acquisitions and repaying debt.

Amy Hood, Microsoft's chief financial officer, set out the plan on the October 28 earnings call, the day before the sale.

To complement cash generated by the business and preserve financial flexibility, we will access additional sources of funding when we believe it is attractive to do so.Amy Hood, executive vice president and chief financial officer of Microsoft, on the October 28, 2026 earnings call

Asked by Tal Liani of Bank of America how Microsoft would raise capital, Hood named leasing as one vehicle and said the company has access to the debt markets given its ratings, adding that it had not yet tapped them.

Set against the quarter

In the first quarter of fiscal 2027, which ended September 30, Microsoft's operations produced $58.0 billion of cash, up 29% from a year earlier, according to its results release. Cash paid for property and equipment roughly doubled to $39.4 billion, leaving $18.6 billion of free cash flow.

Capital spending on Microsoft's own measure, which counts finance leases when they start, was $45.2 billion. Hood guided to more than $50 billion in the December quarter and about $170 billion for calendar 2026. Cash and short-term investments fell $12.3 billion in the quarter, to $64.5 billion, and Microsoft repaid $4.85 billion of debt without borrowing.

By SaasBuzz's calculation, the $25 billion equals nearly two-thirds of one quarter's cash spending on property and equipment, and 1.3 times the quarter's free cash flow. Microsoft's total debt was $35.5 billion on September 30, the prospectus shows, so the new notes add about 70% at face value.

How it compares with the other hyperscalers

Source: Amazon's results release, Alphabet's 10-Q and Meta's 10-Q, cash raised from debt in the nine months to September 30, 2026, net of costs where reported; Microsoft's term sheet.

Microsoft's average fixed coupon of 5.58% is close to the 5.55% Alphabet reported on the $25.1 billion of fixed and floating US dollar notes it issued in the third quarter, which averaged 15 years. Hyperscalers and data center developers had raised more than $313 billion in investment-grade bonds worldwide this year before Microsoft's sale, almost three times the 2025 total, according to Bloomberg data.

What it means for software investors

While the other three borrowed heavily this year, Microsoft had not sold US investment-grade bonds since 2017, paying for its buildout from cash and leases, and its latest quarter shows the strain. Spending on property and equipment doubled while operating cash grew 29%, and cash and short-term investments shrank. SaasBuzz's analysis of the four companies' cash flows found the same pattern across the group; the quarter's results show where Azure demand stands.

The cost is small next to the cash: about $1.28 billion a year of fixed interest is roughly 2% of one quarter's operating cash. What the terms show is that bond investors will lend Microsoft for 40 years at about a point over Treasuries, while Alphabet's lower-rated 40-year bonds trade at a wider spread. Credit buyers are pricing the hyperscalers one by one, not as a single AI trade.

The credit markets are doing a lot of the heavy lifting for sorting out winners and losers at this point.Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, to Bloomberg

Brett Kozlowski, portfolio manager at GW&K Investment Management, told Bloomberg that "the timing of this deal feels opportunistic" and that he expected strong demand given the "uniqueness of very rare long AAA paper". For companies that run on Azure, the question is capacity: Hood said some third-party capacity expected in the quarter was delayed and that spending will accelerate in the second half of the fiscal year.