Key facts
- Asian shares declined on Thursday.
- Major tech companies including SpaceX, Broadcom, and Oracle are reportedly seeking billions in debt to fund AI chip purchases.
- Oil prices surged due to increased attacks on shipping in the Gulf.
- US 10-year Treasury yields pulled back from 24-year peaks after a strong auction.
- The euro slid to near 17-month lows.
- Samsung Electronics projected a 783% jump in third-quarter operating profit.
Asian shares declined on Thursday as reports of major tech companies seeking billions in debt to fund AI chip purchases intensified strains on sovereign bond markets. A fresh rise in oil prices, driven by increased attacks on shipping in the Gulf, added to pressure on Treasuries and weighed on global markets.
SpaceX was reportedly planning to issue $30 billion in investment-grade debt and raise $10 billion in loans to buy chips from Nvidia, while Broadcom was seeking $50 billion in financing for similar purposes. Oracle was also mentioned as looking to raise money for AI chips. This news saw credit default insurance on SpaceX jump to record highs, and its shares and bonds lost ground.
Nigel Green, CEO of deVere Group, warned of a dangerous loop where Nvidia was bankrolling its customers, putting global investors at risk if expected profits failed to materialize. He noted that the AI build-out, initially funded by cash, is increasingly running on credit, which changes the risk profile entirely as debt must be repaid regardless of revenue.
Despite these corporate debt plans, the spending on AI equipment could be positive for earnings in the semiconductor and memory sectors. Samsung Electronics projected a significant 783% jump in third-quarter operating profit to 107.4 trillion won ($80.17 billion), though its shares eased slightly.
These corporate debt issuances come as sovereign bond markets face pressure from inflation fears, widening budget deficits, and rising cash rates. Minutes from the Federal Reserve's last meeting indicated that "most" members considered another rate hike likely by year-end, though markets are pricing in a lower probability for an immediate hike. The prospect of a pause in tightening helped keep 2-year Treasury yields at 4.78% and 10-year yields at 5.298%, off recent 24-year highs.
In Europe, concerns over France's finances spread to Italian and Greek debt, causing the euro to slide to near 17-month lows. Emmanuel Moulin, head of the Bank of France, acknowledged the country's economic situation was serious but reassured investors it did not need help from the European Central Bank. The dollar index rose to 102.22, near an 18-month peak.
In commodity markets, Brent futures rose 0.9% to $101.14 a barrel, and US crude futures added 0.8% to $89.02 a barrel.