To finance their massive AI capital expenditures, tech giants have recently embarked on a borrowing spree, sweeping through both private and public debt markets. Numerous Wall Street institutions and analysts have expressed concern about this phenomenon, with the latest warning coming from DoubleLine Capital, a prominent US investment management firm headed by "Bond King" Gundlach.
Robert Cohen, Global Head of Developed Markets Credit at DoubleLine Capital, recently stated that in the context of artificial intelligence... Fixed-income investors should exercise caution when the boom provides funding .
“You not only have to be careful about the tech industry, but also about the related industries that support these new projects,” Cohen said on a podcast. “Who knows what kind of ripple effect would occur if the music stopped?”
This warning comes as tech companies investing in artificial intelligence are borrowing heavily. This week, Google's parent company, Alphabet, issued $17.5 billion in bonds in the U.S., following a €6.5 billion ($7.48 billion) bond issuance in Europe.
Last week, Meta issued $30 billion in bonds to fund its AI and data center businesses. The company is providing funding for the construction. Last month, it partnered with private lending giant Blue Owl Capital to raise $27 billion through a bond issuance to fund the construction of the Hyperion data center project in Louisiana, USA.
In addition, oracle bone script In September of this year, it raised $18 billion from investors through bond issuance.
Cohen pointed to some novel financing structures (such as off-balance-sheet financing) and the fact that no one knows whether these massive capital projects will be profitable. He warned that overcapacity could lead to losses, noting that companies in sectors such as power and chemicals may face trouble.
“At some point, these projects must prove to be profitable,” Cohen said. “If we find that most of them are not profitable, then the market will react sharply.”
Morgan Stanley It is predicted that from now until 2028, large-scale cloud computing... The company will invest approximately $3 trillion in infrastructure projects such as data centers . The bank estimates that cash flow can fund about half of that, but it will still have to raise a significant amount of debt.
Despite concerns, Cohen still expects fixed-income investors to maintain ample demand for all upcoming technology sector bonds.
The private equity market is also keen to fund the data center boom, but Dual Line Capital, which invests in both public and private debt, does not believe that the latter can provide investors with sufficient additional returns to compensate for its lack of liquidity and transparency.
“I don’t think there are any excess returns in private lending, and our clients are actually asking questions with skepticism,” Cohen said.
He added that some of DoubleLine Capital's clients who have invested heavily in private debt are disappointed with the returns and are not demanding more of that type of investment. Instead, they are interested in alternatives and looking to diversify their private credit exposure.
(Article source: CLS)
