Gauges of credit risk for some of the biggest technology companies hit fresh highs on Tuesday, as investors brace for a wave of post-earnings bond sales they fear may overwhelm already strained debt markets. Davide Barbuscia and Caleb Mutua report that Meta Platforms Inc. and Space X kick off earnings for the sector this week, with investors looking for updates to spending plans and AI ambitions.
Debtholders expect a steady stream of debt sales to fund the AI buildout, according to Lotfi Karoui, multi-asset credit strategist at Pacific Investment Management Co. Credit default swaps tied to Oracle Corp., widely seen as a barometer for AI debt risk, traded as high as a record 343 basis points, ICE Data Services data shows. A gauge of Meta's credit risk also touched an all-time high, soaring as much as 6.3 basis points to 114.8 basis points ahead of its Wednesday earnings report.
Companies have already borrowed more than $450 billion this year worldwide to fund artificial intelligence, according to Bloomberg data. Bondholders have been trimming existing exposure to the sector to make room for potentially sizable issuance. Investors anticipate Meta will sell bonds in the coming days, which would snap a more than two-month drought in Big Tech US dollar bond issuance. Space X, meanwhile, is in talks with banks and investors to raise $40 billion to buy chips from Nvidia Corp.
Meta's April offering was a $25 billion six-part deal, and the company has since been speaking to European bond investors about a potential issue. Credit Sights analyst Jordan Chalfin has flagged the possibility of a large post-earnings transaction. Big Tech's aggressive AI spending and record borrowing have put the sector under fresh scrutiny as investors question whether the outlays will generate sufficient returns. Riskier credits such as Core Weave Inc. have seen their shares and debt hit particularly hard.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing