Risk is rising as big tech firms need to turn to the bond market for staggering sums to finance data centres
Oracle debt now stands just one notch above junk bond status.
by Jeff Sommer
AI money is bolstering the entire US economy, contributing perhaps 1.1 per cent to the nation’s economic growth.
These five companies combined are pouring more than US$800 billion into AI investments this year, and plan to add more than US$1.2 trillion in 2027. (The US military budget request for 2027 is less than that: US$961 billion).
These big companies are able to categorise the money as an investment – a capital expenditure – and not as an expense. So under current accounting rules, the bulk of the spending has not yet counted against their gaudy earnings.
That is helping to propel the stock market to new heights under rosy assumptions that AI will transform the world and that the companies behind it will be making money.
Total capex for Oracle, Alphabet, Microsoft, Amazon and Meta, are exceeding their free cash flow.
Oracle and Amazon bond prices have been hard hit. So have those issued by SpaceX, which is also building AI data centres. Its bonds are rated as investment grade but have been trading at fire-sale prices, like junk bonds.
Source: NY Times
https://www.businesstimes.com.sg/wealth ... owed-money
