According to BondCliQ CEO Chris White, more than half of new bonds from hyperscalers (technology companies building data centers for artificial intelligence) trade at a discount six months after issuance. Speaking on CNBC Fast Money, he also noted that the surplus of such bonds could increase borrowing costs for the U.S. government. BondCliQ specializes in corporate bond data. White does not expect mass defaults but believes that creditors will demand higher yields from hyperscalers.
White stated that bond investors evaluate the market over weeks and months, while stock traders react daily. He cited CoreWeave, a provider of cloud AI computing, and Oracle as examples where investors doubt long-term prospects. Oracle's shares have fallen by more than 33% since the beginning of the year. Apollo Global's chief economist Torsten Slok links the rise in CDS (default insurance) costs on hyperscaler debts to their deteriorating financial performance.
The widening spread means that investors are demanding higher yields compared to safe assets. White described this trend as uncharacteristic for large institutional buyers. He noted that when hyperscalers return to the borrowing market, these investors will take past experiences into account. "Investors won't be fooled a second time," he said.
White estimates that CoreWeave accounts for about 5% of the $258 billion in AI-related debt issued over the year. The company will need to refinance in five to seven years, during which time short-term borrowing rates could rise significantly. Oracle's debt obligations mature over decades, making it less sensitive to interest rate increases.
Among hyperscalers, only Microsoft has the highest credit rating of AAA, White noted, making its bonds an industry benchmark: if Microsoft offers investors better terms, other companies will have to follow suit. He also linked the surplus of corporate issuances to the surplus of U.S. Treasury bonds, citing White House concerns about long-term yields and direct purchases. White emphasized that this is his personal opinion. Investor Ray Dalio has previously warned that the margin of safety for stocks is shrinking as yields rise.
White believes that creditors will demand higher yields from all borrowers, from companies to the U.S. government.
This material is prepared solely for informational purposes and does not constitute financial advice or a recommendation.
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