Technology firms with vast funding needs to pay for their AI ambitions are striking blockbuster debt deals at the fastest pace in years, taking advantage of near-insatiable investor appetite to lock in financing for initiatives whose ultimate payoff remains uncertain.
Borrowers are tapping all corners of credit and finding ready buyers. In the U.S. public bond markets alone, tech companies have raised about $157 billion so far this year, up some 70% from what they issued in the same period last year, according to data compiled by Bloomberg.
Oracle has led the way, with nearly $26 billion of publicly traded debt sold, much of it in a blockbuster offering on Wednesday as it gears up to spend billions to rent data centers and fill them up with Nvidia chips for artificial intelligence customers like OpenAI.
“It is the latest sign that the AI investment boom, long the focus of equity markets, is now spilling into credit,” Johnathan Owen, a member of the investment-grade portfolio management team at TwentyFour Asset Management, wrote to investors Thursday morning.
Behemoths including chipmaker Broadcom, Alphabet and Apple have also stepped in to raise tens of billions of dollars combined, some of them for the first time in years. Meanwhile, Facebook’s parent company is raising $29 billion through private credit for a data center, and banks are arranging a $38 billion debt package to help Vantage Data Centers build sites that Oracle will rent.
The wide-ranging and in some cases unusual deals are a testament to the outsized financing needs of the artificial intelligence race — and the key role debt markets are primed to play. For bond buyers, it’s become a bet that the companies’ investments won’t outstrip demand, and that they’ll have the means to pay creditors back even decades down the road. As of now, investors seem more than willing to accept the risk, without leaving much room for error.
Appetite for investment-grade bonds is so strong now that spreads, or the extra yield investors demand to hold the debt instead of Treasuries, have been pushed to near their lowest in 27 years. Debt from highly rated tech giants in particular has drawn investors who are keen to get in on the hype around AI products and infrastructure.
Oracle was able to boost its jumbo bond sale last week to $18 billion from about $15 billion on the back of strong demand, making it the second-biggest investment-grade deal this year, after Mars’ $26 billion offering for its Kellanova acquisition. The software company also drew about $88 billion in peak orders, with final demand of about $82 billion. Some of the debt isn’t due for 40 years.
The roughly 4% attrition rate on the offering — or the amount of investor orders that drop off during the sale stage — was significantly lower than this year’s average of 21%. Elsewhere, Alphabet’s deal in April was covered seven times over, whereas on average high-grade order books have been covered 3.8 times this year.
“The investable dollars into tech are dwarfing other sectors based on what we’ve seen,” said Matt Gannon, a managing director in the debt capital markets group at Barclays PLC, which wasn’t involved in Oracle’s sale. “It’s one of the only sectors that keeps growing.”
So far this year, technology firms have accounted for 8% of U.S. blue-chip bond sales, the greatest share since 2021 and lagging only financials, consumer discretionary and utilities, which have benefited from data-center demand, too.
For some, the euphoria around AI raises alarming similarities to the dot-com investing bubble that popped in the early 2000s, and concerns that the hype could be overblown. An August study from the Massachusetts Institute of Technology found that 95% of companies that implemented AI pilots didn’t receive a return on their investment.
Others flag longer-term concerns. A Bain & Co. report released last week predicted that AI firms’ revenue is likely to fall around $800 billion short of what’s needed to fund the computing power needed to meet projected demand by 2030.
The infrastructure build-out is so expensive largely due to the AI-oriented Nvidia chips that will fill them and the massive scale of power needed. This summer, Oracle struck a deal with OpenAI for 4.5 gigawatts of data center power, equivalent to about four nuclear reactors. For just one of the data centers in this plan, Oracle plans to spend over $1 billion per year on gas-powered generation.
Even so, investors and analysts covering the sector point out that the companies generally have healthy balance sheets — meaning they’re not taking on too much debt relative to their earnings — and that their credit ratings haven’t shown signs of deteriorating.
More bond sales could come from tech companies this year. Syndicate professionals say many of these cash-rich companies opted not to sell debt last year or earlier this year, instead waiting until yields began to fall.
“There’s a pretty heavy capex need over the course of the next five to 10 years from a lot of these large-cap tech companies,” said John Sales, head of investment-grade syndicate in the Americas at Goldman Sachs Group Inc., which was among the banks that managed Oracle’s sale. “A big way to help fund some of those capex needs is via debt on the balance sheet.”
— With assistance from Brody Ford.
