Credit winter has not come quite yet for the AI investment boom, but borrowing costs are rising sharply. Alphabet, Meta, and Oracle returned to debt markets this week to sell tens of billions in bonds for chips and data centres, adding to a half-trillion dollar surge in AI-related borrowing this year. Hyperscalers are paying notably more than just months ago; Oracle sold $10 billion in bonds with coupons of 7 to 8.5 per cent, up from 5 to 7 per cent in February, while Alphabet issued 19-year euro-denominated bonds at over 5.2 per cent, up from 4.5 per cent in May.
This shift is striking as even top-rated companies see yields climb. Investors are paying up to hedge debt exposure, with the cost to insure Alphabet's dollar debt rising to just under 1 per cent of principal, comparable to junk-rated Mexico. Mark Zuckerberg's hopes for Meta's new AI agent, Muse, are being tested as credit default swaps price risk at 1.2 per cent, in line with junk-rated South Africa.
Beyond the AI borrowers, funds betting on risky European corporate debt have suffered, with yields blowing out to double digits. Borrowers stuck in struggling industries like broadband, such as Altice and Aston Martin, have faced accusations of shifting assets away from creditors. A lesson emerges for bondholders: even high-rated AI debts are bets on who will shoulder complex data centre construction costs.
Oracle has signalled a $20 billion limit for new capital market raises until 2030, signaling a potential shift in the easy money environment. Investors have braced for an AI trade implosion, which might come not with a stock market bang, but through prolonged credit strain.
Source: Financial Times Markets · Summarized by HeadlinesBriefing