Google's Off-Balance-Sheet Guarantees Surge to $43.8 Billion! Betting Big on AI to Boost TPU Sales

As the artificial intelligence (AI) arms race intensifies, Alphabet (GOOGL-US), Google's parent company, is quietly leveraging Wall Street's financial engineering to pave the way for its in-house AI chips—using a strategy rarely seen among tech giants: large-scale off-balance-sheet guarantees.

According to the latest financial disclosures from Alphabet, the notional amount of potential default guarantees provided to data center tenants has skyrocketed nearly sixfold—from $6.5 billion at the end of last September to $43.8 billion.

This means that in the worst-case scenario, if the guaranteed parties face financial distress, Google could be on the hook for payments amounting to tens of billions of dollars.

Using Guarantees to Gain Market Share: TPU's Alternative Path Against NVIDIA

As reported by The Information, this surge in guarantees stems from Google's ambition to promote its Tensor Processing Units (TPUs).

Compared to NVIDIA's (NVDA-US) AI chips, TPUs often require developers to secure low-cost financing to gain traction in more data centers and with clients like Anthropic.

Google's financial guarantees serve as credit enhancements for these data center developers, making it easier for them to borrow cheaply and accelerate data center construction.

In essence, Google is leveraging its balance sheet to expand TPU market share.

Insiders told media that internally, Google believes future TPU sales revenue will far exceed the potential financial burden of these guarantees, and leadership is confident in this calculation.

Currently, Google has provided guarantees for about ten data center projects totaling approximately 2.4 gigawatts of power capacity. However, since the related construction is not yet complete, these guarantees have not yet been activated.

Notably, these deals typically follow a triangular structure: cloud startup Fluidstack leases and plans data centers, installs TPUs, and then resells computing power to end users like Anthropic.

Meanwhile, companies like Hut 8 (HUT-US) and TeraWulf (WULF-US)—originally crypto miners now transitioning to AI infrastructure—often operate the data centers.

The $43.8 Billion Figure Looks Scary, But Actual Risk Is Controlled?

Although the $43.8 billion notional guarantee amount appears alarming, the actual fair value recorded on Alphabet's balance sheet is only $815 million.

This is because the “notional value” represents the maximum potential loss under the most extreme scenario, while the fair value reflects Google's estimated expected cost based on assumptions like default probability, timing, and recoverable amounts.

Jordan Chalfin, Head of Technology Research at credit ratings firm CreditSights, noted that the market need not overreact to the notional figure, as multiple mechanisms mitigate risk.

For example, if a tenant defaults, Google typically has the right to take over the underlying lease, using or subleasing it to other customers—effectively acquiring scarce computing capacity. Additionally, many leases span 15 years, meaning the potential risk exposure gradually decreases over time.

Anubhav Arora, a credit analyst at Fitch Ratings, acknowledged that rating agencies assign investment-grade ratings to these data center projects largely due to “Google's guarantee” as a credit backstop.

He expects this trend to continue in the short term, given that Google generated over $185 billion in operating cash flow in the past 12 months, maintaining strong financing capacity.

Balance Sheet Transformation: From 'Zero-Debt' Myth to Nearly $100 Billion in Debt

Alphabet has long been perceived as a cash-rich, low-leverage company that rarely needs debt to grow. However, this image is rapidly eroding.

As of the end of June, Alphabet's debt has surged from $23.6 billion a year ago to $98 billion. The company has also issued new shares for fundraising for the first time in over two decades. Last quarter’s financial report even showed Alphabet recording negative free cash flow for the first time in its history as a public company.

In addition to the $43.8 billion in active off-balance-sheet guarantees, Alphabet has signed $85.2 billion in off-balance-sheet data center lease contracts yet to be activated. It has also provided $7.6 billion in standby guarantees to help partners secure power and energy equipment, and committed to an additional $24.1 billion in future guarantee capacity once terms are finalized.

Analysts point out that this trend of using off-balance-sheet tools to fund AI infrastructure is not unique to Google. Meta (META-US) has established minority-stake joint ventures in Louisiana and Texas to keep data center construction costs off its balance sheet.

Similarly, Oracle (ORCL-US) relies on similar off-balance-sheet arrangements to support its expansion ambitions. The staggering cost of AI infrastructure is pushing tech giants toward Wall Street-style financing.

Guarantees with Upside: Warrants Lock in Potential Gains

Interestingly, while Google takes on downside risk, it also secures upside potential.

In some deals, Google obtains equity warrants from data center developers in exchange for providing guarantees. If these companies perform well, Google benefits too.

For example, in TeraWulf's project in Barker, New York, building a data center for Fluidstack, Google holds warrants equivalent to 14% of the company's equity. In its collaboration with Cipher Digital, Google secured warrants worth 5.4% of equity.

If Google chooses to terminate a guarantee early, it may have to pay bondholders a large one-time fee, but that payment would effectively convert into ownership equity in the project.

However, not all deals are equally balanced. In the Hut 8 deal, Fitch Ratings noted that if Fluidstack defaults, Google must assume full payment obligations for the entire 15-year lease term, and neither party can unilaterally terminate the contract if major delays occur.

More notably, Google did not receive any warrants in this deal. Hut 8 CEO Asher Genoot revealed on the earnings call that the data center lease is valued at $7 billion, with an additional $2 billion in power and property tax insurance costs.

Insiders say the deal's terms are highly unusual, and it's widely believed such a structure is unlikely to be replicated in the future.