Elon Musk has become both a blessing and a curse for Wall Street: his mega-deals have brought investment banks generous fees but have reshaped the mechanics of global markets. A prime example is the $75 billion IPO of SpaceX in June, which absorbed so much liquidity that it likely postponed the listings of Anthropic and OpenAI. Now, the window for mega-IPOs seems to be closing.
Another example is the purchase of Twitter in 2022. Banks sat on $13 billion of debt for years, financing the deal, which weighed on their balances and cooled the market's appetite for debt deals. The timing was extremely unfortunate: soon after, the Fed raised the rate by 525 basis points over 16 months.
What will happen now as SpaceX begins a new borrowing cycle? The company is seeking $40 billion for Nvidia chips – just months after raising $25 billion in the U.S. corporate bond market. But it's too early to talk about a reversal of the AI credit cycle.
The bond market is still capable of absorbing new issues. SpaceX's entry follows an unusually quiet September when cloud giants did not issue high-rated dollar debt. The tech sector has room for growth: banks account for 18% of the $2.3 trillion U.S. corporate bond market compared to just 10.5% for technology, according to Bloomberg.
AI companies continue to make deals despite expensive borrowing and growing investor caution. Due to the inversion of the U.S. Treasury yield curve, giants are shortening the terms of their issues. In August, Alphabet issued eight tranches worth $8 billion – all with terms of up to five years, which is a notable shift from their previous focus on long-term bonds. According to Goldman Sachs, the share of short-term issues by cloud giants has grown to 46% since mid-year compared to 30% in the first half of the year.
Companies are also turning to non-dollar currencies – the Japanese yen, the Australian dollar. Amazon raised $5.7 billion in its first sterling bond issue, following Alphabet's path. More risky players are complicating structures: Volta Infrastructure Holdings is offering $5 billion in debt financing with a yield of about 11% – one of the highest on the market – and with principal repayment in installments over the term rather than a single payment.
In other words, the rise in global yields has not cooled AI companies' appetite for risk. Bankers will adjust coupons and structures to meet demand. The AI race is no longer just about technology, but also about capital: the ability to quickly raise funds may determine the winners.
This material is prepared solely for informational purposes and does not constitute financial advice or a recommendation.