According to Bank of America analyst Yuri Seliger, Amazon, Google, Meta, Microsoft, and Oracle are relying more on debt to finance their activities. These five “hyperscalers” have collectively raised $121 billion through debt issuance this year. Notably, $27 billion of this amount was specifically allocated to support Meta’s new data center in Richland Parish, Louisiana, as detailed in Seliger's research note from November 17. Amazon also issued $15 billion in new debt on November 17.
TL;DR
- Amazon, Google, Meta, Microsoft, and Oracle raised $121 billion in debt this year.
- Meta's new data center in Richland Parish, Louisiana, received $27 billion of this debt.
- This debt issuance is over four times the average annual debt of these hyperscalers.
- The increased debt supply has widened the yield spreads for these companies' bonds.
To help understand the $121 billion figure, it's over four times the average annual debt of $28 billion issued by these companies in the preceding five years, according to a Bank of America chart.
The sudden influx of these investment grade (IG) corporate bonds onto the market has increased their “spread”: The gap between the interest yield on bonds from these companies, compared to the market as a whole, Seliger said in the note. The yield on Oracle’s debt is trading at 48 basis points (0.48%) higher than the rest of the market.
“Not surprisingly, this deluge of supply has widened hyperscaler spreads materially. From Sep 1st to Nov 14th, spreads are +48bps wider for ORCL, +15bps wider for META and +10bps wider for GOOGL. That’s 27-49% wider, significantly underperforming the overall IG index,” he wrote.
Seliger informed clients that he anticipates an additional $100 billion in debt will be made available to the market in the coming year.
All five companies generate more than enough cash flow to cover their operations. However, the arrival of debt vehicles to fund AI development has complicated the investment case for tech stocks, Morgan Stanley Wealth Management chief investment officer Lisa Shalett told Coins2Day recently. “What was a very simple story is suddenly getting a lot more complex,” she said.