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Tech Giants Tap Debt for AI Boom
19 Nov
Summary
- Hyperscalers issued $121 billion in debt this year.
- Meta's Louisiana data center funding via debt is significant.
- Tech debt has increased yields relative to the market.
Five major technology firms, including Amazon, Google, Meta, and Microsoft, are significantly increasing their reliance on debt financing to fund operations. This year, these hyperscalers collectively issued $121 billion in debt, a substantial increase compared to the $28 billion annual average over the past five years. A notable portion of this debt, $27 billion, was allocated to Meta's new data center in Louisiana, with Amazon also issuing $15 billion in new debt.
This influx of investment-grade corporate bonds has led to a wider "spread," meaning the interest yield on these companies' debt is higher relative to the broader market. For example, Oracle's debt yields are trading 48 basis points higher, and Meta's and Google's are also showing increased spreads. Analysts predict a further $100 billion in debt offerings from these companies in the coming year.
While these companies generate ample cash flow, the increasing use of debt for AI development is complicating the investment landscape for tech stocks. This shift introduces a layer of complexity to what was previously considered a straightforward investment narrative for these tech giants.
