Key facts
- AI companies are raising significant debt, competing with sovereign borrowers.
- SpaceX is seeking $30 billion in debt and $10 billion in loans for chip purchases.
- Broadcom is lining up $50 billion for OpenAI's gear purchases.
- Samsung projected an operating profit increase to $80 billion.
- 10-year Treasury yields rose to 5.31%.
Sovereign borrowers are facing increasing competition for capital from AI giants, which are raising substantial sums to fund their demand for advanced technology. Broadcom is reportedly arranging $50 billion to finance OpenAI's purchases of AI gear, while SpaceX is seeking $30 billion in investment-grade debt and $10 billion in bank loans to acquire chips from Nvidia. SpaceX had previously raised a record $86 billion in its June IPO and subsequently sold $25 billion in bonds, with Nvidia holding a $21 billion stake in the venture.
Analysts suggest these large-scale debt issuances by companies like SpaceX could be a strategic move to accelerate AI development without diluting equity. However, concerns exist about the circular nature of this financing, where chipmakers effectively fund the buyers of their own products. Investors also appear wary of converting equity risk into credit risk, as evidenced by a widening of SpaceX's five-year CDS spread.
Meanwhile, companies supplying data-center infrastructure are benefiting from this surge in demand. Samsung projected a nearly nine-fold increase in operating profit to $80 billion, although its shares declined. This corporate borrowing spree presents a significant challenge for governments needing to finance persistent budget deficits and increased defense spending, especially as aging populations increase healthcare and pension costs while shrinking the tax base.
In the bond market, yields on 10-year US Treasuries edged back up to 5.31% in Asia. They had previously fallen from an overnight high of 5.3645% following strong demand at a recent note auction. Attention now turns to the 30-year Treasury auction to see if yields around 5.70% can attract similar investor interest.