AI Debt Spree Hammers Tech Debt as Traders Rush to Reprice Risk

AI Debt Spree Hammers Tech Debt as Traders Rush to Reprice Risk

(Bloomberg) -- The rush to finance AI is rattling investors in the more than $10 trillion US corporate market, sparking a repricing of risks around some of the biggest technology companies that's showing up in spiking prices for credit insurance, heightened volatility and weakening preformance.

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Heavyweights including Oracle Corp., Broadcom Inc. and SpaceX are among the borrowers that priced nearly half a trillion dollars of new debt this year to pay for the infrastructure powering artificial intelligence, according to data compiled by Bloomberg. The tally is widely expected to rise by orders of magnitude in the months and years ahead. Broadcom alone may raise about $600 billion to finance computing power in the coming years, according to Bloomberg calculations.

The pace and sheer scale of the borrowings, combined with unknowns around the technology and rising interest rates, is put growing pressure on the sector. Tech has been among the worst-performing sectors across credit in recent months, leaving investors nursing losses, while average daily trading volumes for tech names in the bond and credit derivatives markets have soared.

In recent days, news of a wave of potential fresh financings from SpaceX and Broadcom, possibly topping $100 billion, sent credit derivatives linked to hyperscalers and chipmakers climbing to prices that suggest traders see a growing risk of a default over the next five years. For Oracle, it's now above 20%, for SpaceX it's about 16% — and even Nvidia Corp., the world's most valuable company, is given a more than 7% risk of default in that time.

"Every new financing announcement feels like another entrant in an auction for investor balance sheet, and that's creating a level of spread volatility that would have seemed hard to imagine a year ago," said Mark Clegg, senior fixed-income trader at Allspring Global Investments. "Some days it feels like the market is holding an emergency meeting every few hours to reprice the size of the AI buildout."

So-called mega transactions in the tens of billions of dollars used to be few and far between and syndicate banks would spend months telegraphing the deals ahead of launch, plus most of the huge deals were earmarked for mergers and acquisitions. This year, there have been nine US high-grade deals that are $25 billion or above in size, the most ever, most of them in tech.