AI infrastructure's "money-swallowing" bottomless pit: Tech giants' intensive financing sparks bond market concerns, high-grade credit spreads widen.

Tech giants are financing expansion at the most intensive pace since the dot-com bubble, but bond investors are not as optimistic. This month, the risk premium on US high-grade tech bonds rose to 0.79 percentage points, widening significantly from 0.74 percentage points at the end of May.

Since June, Alphabet has completed $85 billion in equity sales, and SpaceX set a record for the largest IPO in history at $75 billion; OpenAI is considering listing as early as next year, following rival Anthropic's earlier move, and Meta is also planning equity financing.

Normally, equity financing strengthens balance sheets, providing a thicker cushion for creditors. However, these companies often already have strong operating cash flows, and their rush to raise large amounts of capital suggests to many bond investors that AI capital expenditures will far exceed previous expectations—and, correspondingly, there will be more debt.

"This tells us that their capital expenditure scale may continue to rise," said Tom Murphy, head of investment-grade credit at Columbia Threadneedle.

SpaceX bonds sold off immediately upon issuance, Alphabet bond prices weaken

Concerns have already been reflected in prices.

SpaceX completed a $25 billion bond issuance this week, but traders were caught off guard by the speed of the price decline—by Friday afternoon, the mark-to-market loss on the bonds relative to US Treasuries had widened to about $360 million.

Alphabet's bonds also weakened after the equity sale announcement, with some market participants attributing this to investor concerns about the Google parent company's AI spending needs.

JPMorgan raises forecast: $5.5 trillion in AI spending, $2.1 trillion in bond financing

Wall Street investment banks are revising up their AI capital expenditure forecasts.

JPMorgan's latest forecast puts total spending related to AI and data centers at $5.5 trillion by 2030, an increase of about $400 billion from its November estimate. Accordingly, over the next five years, data centers are expected to raise $2.1 trillion in the investment-grade bond market, up from a previous estimate of $1.5 trillion, an increase of 40%.

Take SpaceX as an example. The company has $100.8 billion in cash on its books, but S&P Global Ratings expects it to burn through about $113 billion by the end of next year, another $90 billion in 2028, and will likely need to continue issuing bonds and equity financing thereafter.

"Equity is not a substitute for debt, but a supplement to debt"

"Bondholders tend to cheer equity financing announcements, seeing them as a sign of slowing balance sheet deterioration," said Anthony Woodside, head of multi-sector fixed income at L&G Asset Management America. "But this actually means more debt will follow—equity is not replacing debt, but supplementing it."

Some are less pessimistic. Arvind Narayanan, co-head of investment-grade credit at Vanguard, believes that equity sales by tech companies are a "very positive signal" for bond investors—management's willingness to dilute shareholders shows sufficient confidence in their AI plans.

But buyers are becoming more selective. Asset managers are demanding higher yield compensation for AI bonds, and issuers are starting to turn to overseas markets to avoid overwhelming US buyers.

"They can flood the market with a lot of debt, but the price is having to pay ever-widening spreads," said Jeff Schrom, credit strategist at Robert W. Baird, referring to hyperscalers.

A deeper unease lies in the maturities. SpaceX issued 20-year and 30-year bonds, Nvidia issued $25 billion in multi-tranche bonds, and Alphabet issued 100-year sterling bonds in February.

Buying these bonds means taking on decades of technology obsolescence risk, and the tech industry is never short of precedents for seemingly promising companies eventually being left behind by the times.

In the best-case scenario, bond investors rarely enjoy the spectacular returns that shareholders do, but in the worst-case scenario, bond investors' losses are equally heavy.

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