The latest moves by tech giants have sparked market concerns!
Recently, US tech giants have suddenly launched a bond issuance frenzy, with Amazon... Google's parent company Alphabet, Meta, and Oracle The four companies alone have issued nearly $90 billion in bonds. According to foreign media statistics, US companies have issued over $200 billion in corporate bonds this year to fund artificial intelligence. Related infrastructure projects. This raises questions about whether the market can absorb such a large supply, and also exacerbates concerns about the growing AI-related spending.
These concerns also impacted the US stock market, triggering a significant correction since early November. Data shows that since November, the Nasdaq , dominated by technology stocks, has... The indices fell by more than 6%, with the S&P 500 and Dow Jones Industrial Average down 3.47% and 2.77%, respectively. Additionally, the U.S. tech giants index fell 5.73%, and the Philadelphia Semiconductor Index also declined. The index plummeted by more than 11%.
In terms of individual stocks, AMD (Advanced Micro Devices) saw significant gains in the week ending November 14th alone. (AMD) fell by more than 17%, Micron Technology Microsoft fell nearly 16%. Qualcomm shares fell more than 7%. Amazon and Nvidia fell more than 6%. It fell by nearly 6%.
Tech giants' bond issuance surges
Major tech companies are racing to build AI-enabled data centers. And to that end, they actively turned to the debt market for financing. This is a significant shift for Silicon Valley companies that typically rely on cash for investment.
According to Reuters' calculations of publicly available data, since September, the four major cloud computing... Public bond issuance by AI platform companies (often referred to as hyperscale enterprises) has approached $90 billion. This includes $25 billion issued by Alphabet (Google's parent company), $30 billion by Meta, $18 billion by Oracle , and recently $15 billion by Amazon . Of these five giants, only Microsoft has not recently entered the bond market.
While leverage ratios for most large corporations remain low, investors are increasingly uneasy. The rapidly growing public debt fueled by investments in artificial intelligence could put pressure on the U.S. corporate bond market and ultimately diminish the appeal of tech stocks.
While some investors have stated that they are not overly concerned about the impact of recent financing activity on stock valuations, given that these companies still have relatively low leverage relative to their size, the sudden increase in public debt issuance has raised questions about whether the market can absorb such a massive supply, while also exacerbating concerns about growing AI-related spending. These concerns helped trigger a sharp pullback in US stocks this month after six consecutive months of gains.
"All these mega-corporations are issuing bonds, and the market is realizing that the funding for AI won't come from the private credit market or free cash flow," said a portfolio manager at Wellington Management. "The funding will have to come from the public bond market. Capital needs a source to finance all of this, but right now, people are realizing that the money will almost certainly have to flow from the stock market to the bond market."
Bank of America Securities In a recent report, analysts pointed out that if Meta's $27 billion financing agreement with Blue Owl Capital in October (for its largest data center project) is included, hyperscale companies' debt issuance this year has jumped to over $120 billion, compared to an average of only $28 billion over the past five years.
This has sparked market concerns.
In recent months, many companies have turned to issuing bonds to finance large-scale construction projects rather than drawing on cash reserves. According to the Financial Times, US companies have issued over $200 billion in corporate bonds this year to fund artificial intelligence- related infrastructure projects. Analysts warn that this could create a "flood" of the bond market and introduce new risks for credit investors.
JPMorgan Chase The company predicts that this bond issuance boom will push U.S. corporate bond issuance to a record high of $1.8 trillion next year. Goldman Sachs The company previously estimated that bond issuance by “mega” technology companies would account for more than a quarter of the net supply of U.S. corporate bonds this year.
In recent weeks, the issuance of AI-related bonds has put pressure on market prices as investors anticipate hundreds of billions of dollars in bonds flooding the market over the next few years.
Furthermore, the increase in debt among tech companies has introduced new concerns to the market. While the market is driven by promises of high returns from AI, there remains caution regarding whether the technology can generate sufficient profits to justify such massive capital expenditures.
"There have been some concerns surrounding the AI spending story in the last few weeks, and those concerns relate to how companies can finance this, including through debt financing," said a global investment strategist at the Franklin Templeton Institute.
According to a recent report by investment management firm Sage Advisory, AI capital expenditures are projected to reach $600 billion in 2027, up from over $200 billion in 2024 and nearly $400 billion in 2025, while net debt issuance is expected to reach $100 billion in 2026.
As hyperscale enterprises increase borrowing, Nvidia , their primary computing power supplier, has reduced its long-term debt from $8.5 billion in January to $7.5 billion at the end of the third quarter. (Source: S&P Global Credit Ratings) The rating agency upgraded the company's outlook to "positive" last month from "stable," citing revenue growth and strong cash flow.
Reuters reported that Microsoft and Oracle declined to comment. An Amazon spokesperson stated that the proceeds from the recent bond issuance will be used for business investments, future capital expenditures, and repayment of maturing debt, noting that such financing decisions are part of routine planning. Alphabet and Meta did not immediately respond to requests for comment.
The report states that demand for technology company bond issuances has been strong recently, but investors are demanding a substantial premium on new issuances to absorb some of the new securities . Janus Henderson noted in a report that Alphabet and Meta paid approximately 10-15 basis points more than their existing debt in their most recent bond issuances.
While U.S. investment-grade credit spreads (which reflect the premium paid by highly rated companies over Treasury bonds to attract investor demand) remain historically low, they have risen slightly in recent weeks, partly reflecting concerns about a new wave of bond supply shocks to the market.
Janus Henderson stated, "Credit spreads have been gradually narrowing for most of the year... but the recent surge in supply—especially from the technology sector—may have changed the landscape."
However, the shift to debt financing is still expected to represent only a small fraction of large tech companies' total AI spending. UBS recently estimated that about 80%–90% of their planned capital expenditures will still come from cash flow. Research from Sage Advisory suggests that top hyperscale companies are expected to shift from having more cash than debt to borrowing at only modest levels, with leverage ratios remaining below 1, meaning total debt will be less than their earnings.
"Supply bottlenecks or investor willingness are more likely to be a constraint on near-term capital expenditures than cash flow or balance sheet capacity," Goldman Sachs analysts said in a report this week. They stated that, excluding Oracle, mega-corporations could absorb up to $700 billion in additional debt while still being considered safe, with leverage ratios lower than typical A+ rated companies.
(Source: Securities Times)
