US tech giants raised about $500 billion in debt for AI — Asharq Al-Awsat

US technology companies raised about $500 billion in debt over nine months from January to finance the chips, servers and data centers needed to develop artificial intelligence. As Asharq Al-Awsat reports, Google, Meta, Amazon, Microsoft and other companies have turned to active borrowing, despite previously being largely able to rely on their own cash reserves.

Growth in debt financing

Goldman Sachs forecasts that technology-sector borrowing could rise to $1.2 trillion in 2027. Chris Della Fave, senior vice president of consulting company Post Oak Group, estimates that AI-related borrowing now accounts for 25% of all corporate bond issuance, compared with 4% two years ago.

In his estimate, adjusted for inflation, the AI sector could borrow more this year than US cable operators spent on building out the entire internet or US railway companies borrowed during the railway boom of the 19th century.

Investors are actively buying debt securities issued by technology corporations, but demand higher yields. Meta, according to the publication, offered more than 7% annually, while riskier cloud data-center operators offered more than 9%.

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Impact on the bond market

Siebert Financial Chief Investment Officer Mark Malek explained that some investors who would otherwise buy US Treasury bonds may choose bonds from Microsoft and other technology companies. In his view, this shift among investors increases borrowing costs for Washington.

The yield on 10-year US government bonds exceeded 5.30%, the highest level since 2002. According to Asharq Al-Awsat, inflation, the war against Iran and high energy prices also affect the cost of government borrowing.

Risks for the AI sector

At the end of September, the Bank of England’s Financial Policy Committee warned that the risk of a sharper market correction remains, particularly if the pace of AI development or adoption does not meet profit expectations. In July, the technology index Nasdaq fell by almost 7% amid doubts about the AI boom.

Investors sometimes view Oracle as one possible risk indicator. The company has $125 billion in debt, its cash reserves are declining each quarter, and a major data-center project in New Mexico may be delayed. Malek suggested that Oracle’s difficulties servicing its debt could cause stress to spread across the entire AI financing sector.