Morgan Stanley says the artificial intelligence buildout is unleashing a historic wave of borrowing across the largest technology companies.
In a new episode of the Thoughts on the Market podcast, Morgan Stanley’s head of corporate credit research, Andrew Sheets, says hyperscalers need enormous capital to expand data center infrastructure for cloud and AI ambitions.
He notes that the bank estimates spending of about $470 billion this year and $620 billion next year.
“That is over $1 trillion of spending in just a two-year period, and it is still growing.”
Sheets says about half of the cost can be funded through internal cash flows, leaving credit markets to supply the rest. He notes that new issuance is accelerating as companies tap markets in rapid succession.
“The other half, well, debt markets will play a big role, especially as these companies are often highly rated and so have significant capacity to borrow more. And over the last few weeks, those spigots have now turned on. Several large technology hyperscalers have been borrowing tens of billions at a clip, and they’ve been doing this in short succession.”
For now, Sheets says investors are absorbing the deals, with companies paying slightly more to raise capital across large tranches.
“This new borrowing has been coming at a discount, with the issuers willing to pay investors a bit more than their existing debt to take it on. Demand, in turn, has been very high for this debt.”
Oracle has been front and center of the debt boom fueled by the AI market after the cloud computing company tapped the bond market to raise funds several times this year. In response, traders and investors rushed in to buy credit default swaps (CDS) to protect against Oracle’s credit risk.
Other hyperscalers that have resorted to the debt market include Meta and Alphabet.
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