r/valueinvesting
Alphabet Convertible Preferred Offers 6% Yield and Upside With Common Stock - Barron’s
Alphabet issued $19B in convertible preferred stock yielding 6.25% to fund massive AI capex, offering high income with equity upside but lacking downside protection.
- High 6.25% dividend yield provides a strong income alternative to the low-yielding common stock.
- Retains upside potential linked to common stock appreciation upon mandatory conversion in three years.
- Funds massive AI capital expenditures to build future technological capabilities.
- The preferred stock lacks downside protection if the common stock price drops significantly.
- Massive equity raise of over $85 billion could dilute existing common shareholders.
(TLDR: this article describes google’s bond-like convertible stock. )
Alphabet Convertible Preferred Offers 6% Yield and Upside With Common Stock
By Andrew Bary
June 09, 2026 4:23 pm EDT
Key Points
\- Alphabet issued over $19 billion in mandatory convertible preferred stock, offering a 6.25% annual dividend yield.
\- The offering funds Alphabet’s $180 billion to $190 billion AI capital expenditures, with conversion to common stock in three years.
\- Investors gain a high-dividend alternative but face downside risk as the preferred stock lacks protection if common stock drops.
Alphabet’s new convertible preferred offers investors a 6%-plus dividend yield and upside potential if the company’s stock appreciates.
The company offered more than $19 billion of the mandatory convertible preferred last week in two equal parts at $50 a share, and both issues are trading actively on the Nasdaq. The high yield on the preferred stock compares with just a 0.2% payout on Alphabet
Alphabet, the parent of Google, also sold about $18 billion of new common stock last week and plans to sell another $40 billion of common stock starting in the third quarter as it funds massive capital expenditures projected at $180 billion to $190 billion this year to build its artificial-intelligence capabilities. The total equity raise is more than $85 billion.
The first preferred tranche, which is convertible into Alphabet’s class A voting stock, is trading Tuesday under the ticker symbol GOOGM at $50.70, a slight premium to the offering price o f $50 a share. The second tranche, which is convertible into Apple’s nonvoting class C shares, is also around $50.70 and trades with the ticker GOOGN.
The twin offerings—each totaling 192.5 million shares—were the largest mandatory convertible preferred issues in market history. Each issue carries a 6.25% annual dividend yield based on the offering price of $50, and a slightly lower yield now.
Mandatory convertible preferred stock “is effectively yield-enhanced common stock,” says Michael Youngworth, head of global convertibles research at BofA Securities.
Unlike a traditional convertible offering that promises that holders will get their original investment back at maturity, mandatory convertibles will get exchanged for common stock in three years.
This means that investors are exposed to downside in Alphabet stock while participating in the upside subject to the conversion premium.
The mechanics are a little complicated with mandatory convertibles. The Alphabet deals had conversion premiums of 25%. The upshot is that holders will get back $50 a share if Alphabet common stock is between roughly $360 a share and around $440 a share—the terms are slightly different on the two issues. Above $440 or so, investors fully participate in the upside in Alphabet stock. Below around $360 a share on the common and preferred holds stand to get back less than $50 a share in three years.
Alphabet’s Class A shares (GOOGL) were trading late Tuesday at $364.25 and the C shares (GOOG) at $363.12, both up less than 0.5% in the session.
The price of the mandatory convertible preferred should track Alphabet common stock. The delta on the convertibles is estimated at around 70%, according to Bloomberg, meaning holders of the preferred will see a 70-cent increase for a $1 increase in the common stock. The delta. however. will change with the movement in the common stock.
“They have a high delta to the (common) shares and no bond floor since holders are required to convert to shares at maturity—no option to get par back, like in a traditional convert. Investors are compensated for this by getting a larger dividend payment,” Youngworth told Barron’s in an email.
For those familiar with options, the mandatory convertible amounts to common stock plus the sale of a call spread.
The benefit to Alphabet is that if its stock rallies, the mandatory convertibles are less dilutive than an issue of common stock, but the company must pay a higher yield on the preferred than the common.
For yield-oriented investors, the Alphabet mandatory preferred offers a liquid, high-dividend alternative to the company’s common stock. Just realize that the preferred doesn’t offer downside protection if the stock drops.
I don't see any scenario where Google having to raise money through fixed yield convertible instruments isn't a sign of frothiness in the market,
I doubt if Google is way overvalued.
Frothy market yes.
I think we will know in a year's time when the AI labs IPO and if the capex holds. My sense is that that the money hyperscalers are making from providing GPUs are much more than what the LLM providers are making from selling the tokens. I do think Google has a strong moat and it was undervalued last year but I am not sure if the earnings expectations are sustainable enough to give any real gain on the current valuation.
They don’t NEED to, but clearly they think they can raise money at 6% and invest it in their business development, and earn something higher
I wonder if Google is just trying to grab some liquidity before the looming liquidity black hole that is these other massive IPOs in the pipeline.
Yes this is exactly what I read
I think it’s specifically the fact that it’s not a plain loan but a convertible note that’s alarming to me.
A plain loan avoids dilution, but adds debt to the balance sheet.
A mandatory convertible preferred is more like delayed equity financing. Google raises capital now, pays a higher yield for the flexibility, and pushes the dilution question into the future.
The bet is that by the time it converts, Google will have monetized the AI buildout enough to support a higher stock price, larger market cap, and stronger earnings base which makes the eventual dilution much less painful.
I understand what a convertible. I think them turning to complicated financial instruments vs debt means that either they can’t raise debt or are making bets on their own stock neither of which are a positive sign to me. If they can’t raise debt at 6-7% while making an ROIC of 20%+, it makes zero sense to dilute equity.
I get the concern, but I think there’s another way to look at it.
Google bought back \~$110B of stock in 2024–2025 when the AI story was priced much more conservatively, and now they’re issuing equity-like capital with the stock near highs. That’s still dilution, but IMO it’s a much more rational setup than issuing after a drawdown. And because the convert has a 20%–25% conversion premium, it’s meaningfully less dilutive than a straight common offering.
On the “if they can’t raise debt at 6–7% while making an ROIC of 20%+” point, that assumes the existing business maps cleanly onto $180B+ of greenfield AI capex with uncertain return timing. Loading up on fixed obligations against returns that haven’t materialized yet is how an execution question turns into a balance sheet question.
Equity costs more, but it buys flexibility. That matters when capex keeps stepping higher.
You can definitely make a bearish case from it, but I’m bullish on GOOG long term and don’t have a problem with how they’re raising the funds.
When was the last time a megacap like Alphabet issued convertible preferred shares?
1970s…. :)
All i hear is stagflation
Here are some of the information that I got fr
Lucy Diamonds:
https://g.co/gemini/share/ac38a77bed1d
I think we know GOOG share price lower in 2009
Probably looking for higher upside.
Google is just so damn smart. They have Apple offering the new Gemini Siri for free that runs on the Google Cloud.
Google has seen 11 straight quarters of increasing cloud margins. So Apple is going to be paying Google a ton of money.
So basically Google makes the money from the new Gemini Siri.
The issue is that AI capex has become enormous, and if the market is willing to give them a liquid, equity-like financing vehicle at attractive terms, it makes sense to use it instead of funding the entire AI buildout from cash and operating cash flow.
If the AI spend produces the revenue base Google expects, and I think i t will, they effectively used investor capital to accelerate the buildout during the most important competitive window. That's why I feel like there's room for continued growth.
I can't speak for the right option to finance their funding but for the investment into AI, in don't see any other option. This is exactly the challenge that a market leader faces, should they chase a current hyped technology or wait it out to be proven and risk being overtaken. History is littered with examples of who didn't react fast enough- Nokia and blackberry in mobile hardware, Microsoft in terms of mobile Os etc. and also of the opposite - meta spending 80 billion in VR, or tv companies into 3D of investing in technologies which didn't make it.
Now is this a search killer, we don't know, but it's looking highly likely. Google rather should invest and reduce profits for a while rather than have them made irrelevant. Just like Meta, a 100 billion or in this case 500 billion down the drain won't really impact the firm much, especially the alternative could mean you don't exist 5 years from now
I don’t doubt Google’s moat at all. I completely appreciate the fact that if AI isn’t the hot shit it’s made out to be, they can immediately stop capex and still have businesses that throw out hundreds of billions in FCF. But investing is also about value and I’m not sure about meaningful gains from this point. I was and am bullish on Google and missed investing last year for one reason or another. If I did, I would be booking profits right now.
Am a long term investor of Google including last year, am pretty impressed with their AI turnaround after lagging behind chatgpt early on.
Their integration into existing products especially AI summary is brilliant- (and has redefined search now), some better than the others ( don't like the Google photos one) , their TPU decade long investments is paying off and should increase their cloud adoption which has been lagging the leaders, the apple Siri/ intelligence integration with Gemini is probably similar to the search traffic partnership. Everything so far suggests, they are edging the general consumer race and their leadership has done pretty well in positioning themselves after being caught sleeping early on.
I am not yet booking profits, it's change for sure, the type which will be analyzed for decades, but this could push them into a new growth phase beyond the annual 5-10% pre AI, requiring a rerating. I am pretty confident in this leadership.
So in theory are these stocks better than Google’s ordinary stock? The way I understand it, they will eventually convert to common stock 3 years into the future, but will provide a guaranteed dividend.
Is there a downside to buying these as compared to common Alphabet stock?
I am wondering about the dilution of the 50b in stock to be sold in 3rd quarter. We talk of dilution of this 20b, which is half of what will happen in 3rd quarter. Also the 10b in stock sold to Berkshire - which I guess the market has now absorbed.
Still wondering how they are going to return that Capex spending on AI, longterm there has to be a few Companies that just die to justify that.
My thought is that they're paying that not to get N% return on this money but to stay who they are now and secure their moat
You know you’re in big trouble if you have to keep spending a huge amount of money just to maintain the status quo.