AI giants turn to massive debt to finance tech race
Meta raised $30 billion in debt on Thursday, as tech giants flush with cash turn to borrowing to finance the expensive race to lead in artificial intelligence.
On a day when Facebook-parent Meta’s share price plunged on the heels of disappointing quarterly earnings, demand for its bonds was reportedly four times greater than supply in a market keen to hold the social networking titan’s debt.
The $30 billion in bonds scheduled to be repaid over the course of decades is intended to provide money to continue a breakneck pace of AI development that has come to define the sector.
“(Mark) Zuckerberg seems like he’s got no limit in terms of his spending,” said CFRA Research senior equity analyst Angelo Zino.
Zino noted that Meta takes in more than $100 billion a year, and that while Wall Street may be concerned with Zuckerberg’s spending it sees little risk debt won’t get repaid.
“(But) they just can’t use up all their excess free cash flow and completely leverage it into AI.”
The analyst wouldn’t be surprised to see Meta AI rivals Google and Microsoft opt for similar debt moves.
Shareholder worry over Meta spending, on the other hand, is believed to be what drove the tech firm’s share price down more than 11 percent during trading hours on Thursday.
Meta’s debt, however, drew flocks of investors despite rates for corporate bonds being at decade lows, noted Byron Anderson, head of fixed income at Laffer Tengler Investments.
“Is there some worry about the AI trade? Maybe,” Anderson said. “But the revenue and profit coming off that company are massive.”
If not for a one-time charge related to US President Donald Trump’s Big Beautiful Bill, Meta would have recorded $18.6 billion in its recently ended quarter.
That amount of net income is more than General Motors, Netflix, Walmart and Visa profits for that quarter combined.
– FOMO? –
Anderson doubts that so-called fear of missing out on the AI revolution drove demand for Meta’s bond. “I don’t think this was FOMO,” he said.
“People want good quality names in their portfolios at attractive levels, and this is a high-quality name — just like Oracle.”
Business cloud application and infrastructure stalwart Oracle is reported to have raised $18 billion in a bond offering last month.
According to Bloomberg, the Texas-based tech firm is poised to issue an additional $38 billion in debt, this time through banks rather than bond sales.
Debt taken on by major AI firms is typically secured by physical assets, such as data centers or the coveted graphics processing units (GPUs) vital to the technology.
