Since June, Alphabet has completed an equity sale of $85 billion, and SpaceX has set an IPO record with $75 billion; OpenAI is considering going public as early as next year, after rival Anthropic has taken the lead,MetaEquity financing is also planned.
By common sense, equity financing thickens the balance sheet and provides a thicker safety cushion for creditors. However, these companies often already have strong operating cash flow and are eager to raise large-scale financing. In the eyes of many bond investors, it means that AI capital expenditure will far exceed previous expectations-correspondingly, there will be more debt.
"That tells us that the scale of their capital expenditures is likely to continue to rise," said Tom Murphy, head of investment grade credit at Columbia Threadneedle.
Alphabet bonds weaken as SpaceX bonds sell off immediately after listing
The concern is already reflected in the price.SpaceX completed a $25 billion bond offering this week, but traders were unexpected by the pace of the price decline — the bond's book loss relative to U.S. Treasury Bond had widened to about $360 million as of Friday afternoon.
Alphabet's bonds similarly weakened following the announcement of the equity sale, which some market participants attributed to investor concerns about the Google parent's AI spending needs.
JPMorgan ChaseRaised forecast: 5.5 trillion AI spending, 2.1 trillion bond financing
Wall Street investment banks are uprevising their AI capital expenditure expectations.JPMorgan Chase's latest forecast is that total spending related to AI and data centers will reach $5.5 trillion by 2030, an increase of about $400 billion from last November's estimate. Correspondingly, the financing scale of data centers in the investment-grade bond market is expected to reach $2.1 trillion in the next five years, compared with the previous forecast of $1.5 trillion, an increase of 40%.
Take SpaceX, for example. The company has $100.8 billion in cash on its books, butS&P GlobalIt is estimated that it will consume about $113 billion by the end of next year, and another $90 billion by 2028. There is a high probability that it will need to continue to issue bonds and equity financing in the future.
"Equity is not a substitute for debt, but a supplement to it"
"Bondholders tend to cheer the equity funding announcement as a signal of slowing balance sheet deterioration," said Anthony Woodside, head of multi-division fixed income at L&G Asset Management America, "but it really means more debt will follow — equity is not replacing debt, but supplementing it."Others are less pessimistic. Arvind Narayanan, co-head of investment grade credit at Vanguard, believes that the equity sale of technology companies is a "very positive signal" for bond investors-management's willingness to let shareholders suffer dilution indicates sufficient confidence in the AI plan.
But buyers are becoming more selective. Asset managers demanded higher compensation for AI bond yields, and issuers began to turn to overseas markets to avoid overwhelming U.S. buyers.
"They can pour a lot of debt into the market, but at the cost of having to pay higher and higher spreads," Jeff Schrom, credit strategist at Robert W. Baird, said of hyperscalers.
The deeper unease lies in deadlines. SpaceX issued 20-year and 30-year bonds,Nvidia$25 billion in multi-maturity bonds were issued, and Alphabet issued a 100-year sterling bond in February this year.
Buying these bonds means taking on the decades-long risk of technology obsolescence, and the technology industry has never been short of seemingly promising precedents that will eventually be eliminated by the times.
In the best-case scenario, bond investors rarely get as spectacular returns as shareholders, but in the worst-case scenario, bond investors lose just as heavily.
