An unprecedented surge in borrowing by US tech giants is causing significant jitters in international markets. According to reports, the debt of companies leading the AI revolution increased by $500 billion since the beginning of the year, as the cash flows of titans like Google, Meta, Amazon, and Microsoft are no longer sufficient to cover massive infrastructure needs.
AI Dominance in the Bond Market
Goldman Sachs predicts that by 2027, the borrowing of tech giants will reach $1.2 trillion. Notably, 25% of total private bond issuance is now related to Artificial Intelligence, a figure that stood at just 4% two years ago. Analysts emphasize that companies are borrowing at a breakneck pace to fund chips, servers, and data centers, surpassing historical borrowing levels seen during the US railroad boom, even when adjusted for inflation.
Pressure on Treasuries and Rising Interest Rates
This over-borrowing is directly impacting US Treasury yields, which have reached their highest levels since 2007. As Mark Malek of Siebert Financial explains, investors may choose to buy debt from Microsoft instead of the Treasury, putting upward pressure on yields. Already, Meta has been forced to offer yields exceeding 7%, while data center companies have surpassed 9%.
Risks for Smaller Firms and the Oracle Case
While major players maintain access to capital, smaller companies face severe challenges. SoftBank recently borrowed $11.1 billion at a 9.75% interest rate. Meanwhile, Oracle's stock has declined by approximately 30% since the start of the year. The company invoked a force majeure clause to delay payments for a data center project in New Mexico to avoid cost overruns, intensifying fears of a 'contagion effect' across the AI debt ecosystem.
'A slowdown in the frenetic pace of infrastructure development could trigger a massive adjustment in market valuations,' warns Mark Malek.
