Broadcom, SpaceX AI chip debt plans add to bond stress

Big technology companies want to borrow tens of billions of dollars to buy artificial intelligence chips, and that is adding pressure to a bond market already under strain. Investors say the wave of corporate debt is competing with government bonds for the same pool of money. The Wall Street Journal News Corp ↗ 0.28% reported this week that Broadcom ↗ 0.39% is trying to raise more than \$50 billion to fund a custom AI chip it is building with OpenAI. Oracle ↗ 4.21% and SpaceX are also lining up large chip financings, with lenders including Apollo, Blackstone and Goldman Sachs in talks.wsj

The borrowing comes as U.S. Treasury yields sit near multidecade highs. Some investors say issuance tied to the AI buildout has become one of the main drivers of the selloff.rmb.reuters

A \$40 billion order for Nvidia chips

SpaceX is in talks to raise about \$40 billion to buy chips from Nvidia ↘ 0.52%. The plan, first reported by the Financial Times and confirmed by Reuters, splits that into roughly \$10 billion of bank loans and \$30 billion of investment-grade debt. Apollo is expected to lead the deal, and Pimco is among the investors in talks. Bloomberg reported that the talks are at an early stage and could end without a deal. Nvidia is a major shareholder in SpaceX. After the reports, the cost of insuring SpaceX debt against default through credit default swaps rose to record highs, and its shares and bonds fell.business-standard+2

The deal would come only months after SpaceX sold \$25 billion of U.S. corporate bonds. "Musk may be testing the limits of the debt boom, but he's unlikely to break it," Bloomberg Opinion columnist Shuli Ren wrote.smh

Competing with Treasuries

According to Reuters, buyers of long-term bonds from big AI cloud companies, known as hyperscalers, often hedge against rising interest rates by selling Treasury futures. That adds selling pressure on government debt. "When a transaction prices midday, in the afternoon everyone is selling Treasury futures," said Neil Sun of RBC BlueBay Asset Management. Other investors sell Treasuries outright to make room for higher-yielding corporate bonds. Goldman Sachs The Goldman Sachs Group, Inc. ↗ 1.44% expects hyperscalers to sell a record \$420 billion of debt next year.rmb.reuters

The U.S. 10-year Treasury yield is up about 135 basis points since the war with Iran began in February, reaching about 5.23%. The 30-year yield is around 5.61%. Global stocks slipped on Thursday, Oct. 8, as oil prices rose more than 4% and investors weighed how much tech companies may need to borrow. Minutes from the Federal Reserve's last meeting showed that "most" officials see another rate hike as likely by year-end.business-standard+1

Doubts about the math

Some strategists question whether the spending will pay off. With hyperscalers expected to spend more than \$10 trillion on capital projects, "the math doesn't work for me," said Mike Mullaney of Boston Partners. Alex Morris of F/m Investments said bond investors are effectively telling Washington, "I don't know if you guys have got this under control".gvwire+1