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Tech companies are issuing more debt now than before the dot-com crash as a rapid infrastructure buildout unfolds in the AI boom, Moody\u2019s Analytics Chief Economist Mark Zandi said in a LinkedInpost on Sunday.<\/p>\n
Even after adjusting for inflation, big tech companies are issuing more bonds than during the late 1990s. And the companies aren\u2019t just refinancing existing debt\u2014they\u2019re taking on additional debt.<\/p>\n
\u201cWhile the increasingly aggressive (and creative) borrowing by AI companies won\u2019t be their downfall, if they do fall short of investors\u2019 expectations and their stock prices suffer, their debts could quickly become a problem,\u201d Zandi wrote.\u00a0<\/p>\n
\u201cBorrowing by AI companies should be on the radar screen as a mounting potential threat to the financial system and broader economy.\u201d<\/p>\n
The 10 largest AI companies, including Meta, Amazon, Nvidia and Alphabet, will issue more than $120 billion this year, Zandi said in a LinkedIn analysis last week.<\/p>\n
And this time is different from dot-com era debt issuance, as internet companies\u00a0back then didn\u2019t have a lot of debt, he pointed out. Instead, they were funded by stocks and venture capital.<\/p>\n
\u201cThat\u2019s not the case with the AI boom,\u201d Zandi added.<\/p>\n
Even though hyperscalers like Amazon, Google, Meta, and Microsoft could pay for the AI buildout with their profits, bond issuance is the \u201ccheapest and cleanest\u201d way to finance an infrastructure buildout of this scale, which will likely last more than a decade and be worth trillions of dollars, Shay Boloor, chief market strategist at Futurum Equities, told Fortune<\/em>.<\/p>\n \u201cThese companies are a lot more comfortable issuing 10- to 40-year papers, for example, at very low spreads, because the market now views them as quasi-utility names\u2014because they\u2019re building all this infrastructure\u2014not just a pure tech company anymore,\u201d Boloor said.<\/p>\n He added that in the previous six months, tech companies have shown \u201cproof in the pudding\u201d that future demand for AI is booming.<\/p>\n Despite AI bubble concerns, Nvidia delivered a strong earnings report for its third quarter last month, saying its AI data center revenue increased by 66% from last year.\u00a0<\/p>\n Still, critics warn that the buildout may not keep up with how rapidly AI is developing.<\/p>\n Computer hardware, which makes up most AI data centers\u2019 cost, may be more susceptible to becoming obsolete and replaced by more advanced technology during the AI boom as opposed to wireless and internet buildouts, much of which still runs today, George Calhoun, professor and director of the Hanlon Financial Systems Center at Stevens Institute of Technology, told Fortune<\/em>.<\/p>\n \u201cThe cycle of innovation in the chip industry is much faster than for wireless technology or fiber optics,\u201d he said explained. \u201cThere is a real risk that much of that hardware may become competitively disadvantaged by newer technologies in a much shorter timeframe,\u201d before being fully paid off.<\/p>\n At the same time, big players in the AI boom\u2014namely OpenAI\u2014do not have the profits currently to cushion their massive investments at the moment, increasing their risk, Calhoun said.<\/p>\n \u201cIf OpenAI fails, the snowball effect of that is gonna be substantial,\u201d Futuruum Equities\u2019 Boloor said. Though larger tech companies won\u2019t likely be impacted much by a potential OpenAI bust, companies that largely rely on its business like Oracle could, he added.<\/p>\n Still, Boloor is optimistic about the AI buildout, saying the main bottleneck for its success is U.S. energy capacity.<\/p>\n \u201cI think that the risk is that trillions of dollars of AI capacity gets built faster than the North American grid can support it, which could slow realization,\u201d he warned.\u00a0<\/p>\n<\/div>\n #Borrowing #companies #represents #mounting #potential #threat #financial #system #Zandi<\/p>\n","protected":false},"excerpt":{"rendered":" Tech companies are issuing mor… <\/p>\n","protected":false},"author":1,"featured_media":1962,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[2],"tags":[113,1969,97,266,648,121,443,22,1055,1971,365,1970,1043,953,1058,615,1968,1972],"_links":{"self":[{"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/posts\/1961"}],"collection":[{"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1961"}],"version-history":[{"count":0,"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/posts\/1961\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/media\/1962"}],"wp:attachment":[{"href":"https:\/\/microvibenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1961"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1961"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1961"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}