Intel, Amazon results push tech default swaps to records

The cost of insuring the debt of major US technology companies against default rose to new record highs on Friday, October 30. Disappointing quarterly reports from Intel ↘ 28.58% and Amazon Amazon.com, Inc. ↘ 1.41% added to investor doubts about whether the borrowing that is paying for the artificial intelligence buildout will pay off, Bloomberg reported.bloomberg.com

The five-year protection price on Intel bonds jumped as much as 21.8 basis points on Friday morning to 127.4 basis points a year, according to ICE Data Services. Both the size of the jump and the level were records. Protection costs for Advanced Micro Devices ↘ 10.88% reached their highest since early 2019, and Broadcom ↘ 5.48% hit another new high. Citing Bloomberg, Oninvest reported that Amazon's swaps also reached a record of 94 basis points. Microsoft ↘ 1.55% swaps set a record as well.en.oninvest.com+1

A two-day selloff in credit

The pressure began on Thursday, after Alphabet ↘ 1.45% posted third-quarter revenue and earnings per share that fell short of expectations. That day, Broadcom's five-year swaps rose about 10 basis points to a record close of 175.4 basis points. SpaceX's gauge climbed about 20 basis points to 266.5, its highest close since the contracts began trading this year. Alphabet's swaps rose about 5.1 basis points to roughly 84, their largest increase since July.business-standard.com

Investors also expect more bond supply. Broadcom is planning a bond sale of as much as about $21 billion as part of a $63 billion funding package to finance chips for Anthropic, and SpaceX has signed an equipment-finance lease worth roughly $40 billion for AI chips. "The issuance pipeline remains heavy, and deteriorating free cash flow and still-rising capex guidance point to more supply ahead," said Tony Trzcinka of Impax Asset Management. Gavan Nolan of S&P Global Market Intelligence said credit "is telling a bit of a different story than equities" on tech.business-standard.com

Asian chip stocks slide

The selling spread to Asia on Friday, according to AFP via BSS. SK hynix ↘ 7.95% fell almost 9%, Samsung dropped more than 6%, and SoftBank slid. South Korea's Kospi and Japan's Nikkei 225 also fell sharply. The moves followed late US trading in which Alphabet, Amazon and Intel shares dropped after their reports. Intel's outlook missed estimates because of weak PC processor demand and supply-chain problems.bssnews.net

"The concern isn't that AI demand has already slowed. It's that higher funding costs and credit risk could eventually force hyperscalers to slow their build-out," said Anna Wu of Floodlines Research.bssnews.net

Some companies are showing restraint. Oracle ↘ 6.37% said it would raise just $20 billion in additional capital over the next several years, and its swaps then fell the most in nearly nine months. John Lloyd of Janus Henderson said hyperscalers have "responded with greater capex discipline and more equity funding, easing some of the balance sheet concerns".business-standard.com