Bond investors are questioning the AI boom as spending heads toward USD 5.5 tn

Tech companies are raising equity like it’s the dot-com era again — and bond investors are getting nervous. Alphabet sold USD 85 bn of stock this month, while SpaceX followed its record USD 75 bn IPO with a USD 25 bn bond sale, Bloomberg reports.

Why the nerves? Companies that already generate strong cashflow are still raising fresh capital, suggesting they are preparing for heavier AI spending than investors had expected. OpenAI could pursue an IPO as soon as next year, while Anthropic and Meta are weighing equity raises. “It’s telling us that the amount of capital expenditure that they’re going to do is probably going to go up,” Columbia Threadneedle’s Tom Murphy said.

The bill keeps getting bigger: JPMorgan now expects AI and data center-related spending to reach USD 5.5 tn by 2030, up USD 400 bn from its November forecast. It also expects USD 2.1 tn of data center financing to be raised in high-grade bond markets over the next five years, up from USD 1.5 tn previously.

Bond markets are already blinking: SpaceX’s USD 25 bn bond sale weakened shortly after trading began, leaving investors with roughly USD 360 mn of paper losses relative to Treasuries, while spreads on US investment-grade tech bonds widened to 79 bps this month from 74 bps at the end of May.

The risk is duration as much as debt. Bondholders are being asked to take decades of AI obsolescence risk, with SpaceX and Nvidia both selling 20- and 30-year bonds this month and Alphabet selling 100-year GBP bonds in February. That makes the downside more awkward for credit investors: shareholders get the upside if the AI wager works, but bondholders are left holding the bag if it does not.

That is exactly the kind of risk the Bank for International Settlements (BIS) is worried about. The BIS warned in its annual report (pdf) that the AI boom is becoming increasingly reliant on debt and complex funding structures, while supply bottlenecks and intense competition could trigger the kind of overinvestment seen in previous boom-and-bust cycles.

The warning goes beyond AI: The BIS also flagged record public debt, sticky inflation risks, and fragile bond markets, warning of a new “sovereign-financial stability nexus” that could amplify shocks, Reuters reports. “Policymakers must act now,” BIS General Manager Pablo Hernández de Cos said. “Delay will only make the necessary adjustments more costly.”

MARKETS THIS MORNING-

Asia-Pacific markets are mixed in early trading this morning, as regional developments continue to weigh on investor sentiment. Japan’s Nikkei and South Korea’s Kospi are both down, while the Hang Seng is looking at gains. Over on Wall Street, stocks are set to open higher, with futures in the green.

THE CLOSING BELL-

The ADX remained flat on Friday on turnover of AED 1.0 bn.The index is down 1.1% YTD.

In the green: Ins. House (+6.3%), Gulf Cement Co. (+4.0%), and National Corporation for Tourism & Hotels (+2.7%).

In the red: GFH Bank (-4.9%), Invest Bank (-3.3%), and Aram Group (-2.4%).

Over on the DFM, the index fell 0.1% on turnover of AED 707.8 mn. Meanwhile, Nasdaq Dubai was up 0.2%.