Bond Markets Are Feeling The Heat Of Big Tech’s AI Spending
Transcript
Transcript
Transcript
Since September 4, big tech firms Alphabet, Meta Platforms, Oracle and Amazon.com have issued nearly $90 billion in bonds to fund their AI infrastructure plans. If you add the $27 billion financing deal then met Astra to fund its data center project, then the hyper scalar debt issuance has jumped up to about one $20 billion. And this would compare with an average of about 28 billion over the past five years. This is according to BofA Securities and. Tyler has what’s changed? Now big tech would typically fund all their infrastructure via their organic cash flows or private credit. But with AI capital expenditure on the rise, they’re now tapping the public bond market. JP Morgan estimates now AI infrastructure will cost about $5 trillion by 2030. Now off that only 1 1/2 trillion dollars will come from the companies organic cash flow. So the remainder will require the tech forms to turn to the capital market which also includes the bonds and according to JP Morgan. It could be 1 1/2 trillion dollars worth of bonds by 20-30. And as big Tex AI spending spills into the bond markets, investor banks could be rising. So bond yields and spreads are also creeping up, which basically means investors want more premium to lend. For example, this AI debt binge has pushed up the US investment credit spreads from a multi year low of 74 basis points in September to 85 basis points in November. And this, according to analysts, is the fastest 11. Basis points widening since 2022. So, you know, for now, investors aren’t really hitting the panic button because big tech is still lightly leveraged. They generate enormous cash flows. But maybe the bond market is signaling that this era of free money for AI could be ending. What do you think?
