Tech
Big Tech’s record debt fuels AI infrastructure concerns
Big Tech raises over $120 billion in debt to fund AI infrastructure amidst market instability concerns
Big Tech raises over $120 billion in debt to fund AI infrastructure amidst market instability concerns
– Major U.S. tech firms raised over $120 billion in debt for AI, replacing cash strategies, causing investor concerns.
– Significant bond issuance raised market credit spreads, with fears over debt sustainability and investment returns increasing volatility.
Only Microsoft has avoided borrowing from debt markets recently. Total debt issuance has increased substantially from an average of $28 billion over the past five years.
The surge in debt has exacerbated U.S. investment-grade credit spread widening from 74 basis points in mid-September to 84 basis points in mid-November. Alphabet and Meta both paid around 10-15 basis points over their existing debt for these new offerings, indicating investor caution. Oracle’s long-term bonds have faced scrutiny, declining by about 8% and trading at 65 cents on the dollar, with some analysts predicting a potential downgrade to junk status.
Market Pressures
AI capital expenditure is expected to hit $600 billion by 2027, up from $200 billion in 2024. Despite significant borrowing, around 80-90% of planned expenditures rely on cash flows. The mounting debt concerns have contributed to market volatility.
Following Nvidia’s earnings report on November 19, stocks initially rallied before a sharp reversal, with the S&P 500 declining 3% this month due to doubts about AI investment returns.
