AI Debt Fears Ease After Meta Stock Offering, but Oracle, Alphabet and Amazon Updates Loom
Credit investors spent last week fretting over the borrowing that funds the artificial intelligence boom. Some of that anxiety has faded after Meta Platforms...
Credit investors spent last week fretting over the borrowing that funds the artificial intelligence boom. Some of that anxiety has faded after Meta Platforms said on Monday it plans a $95 billion stock offering.
The announcement pulled down Meta's credit default swap spreads, a gauge of how much it costs to insure against a company's debt going bad. Those spreads had climbed after Meta reported negative free cash flow for the third quarter. Spreads on other companies had also moved higher, though they have since retreated.
Why the jitters started
The trigger was Meta's cash flow. When the company reported spending that outran the cash it generated, its CDS spreads and bond yields rose. Markets had assumed a big bond sale would follow quickly after the earnings release, according to Richard Cheng, who heads the investment-grade corporate sector team at Nuveen.
Equity, not debt. That is what Meta chose, and it soothed nerves.
The week's tests
Fears have eased, but the calendar offers more checkpoints. Oracle holds its Investor Day on Wednesday. Alphabet reports quarterly results after the market close on Wednesday, and Amazon follows on Thursday. Microsoft also reports this week.
Investors will focus on two things: how much the companies plan to spend on capital projects, and whether they signal fresh debt issuance to pay for it. Credit markets remain on edge over the volume of AI-related borrowing, even after the recent calming.
What to watch
Capex guidance is the first marker. A larger spending plan raises the question of how it will be financed. Any hint of new bond sales would put the debt worry back in front of investors.
Credit signals are the second. Moves in CDS spreads and bond yields for the big spenders showed the strain last week, and they are the likeliest place for renewed stress to appear. Meta's episode also showed that negative free cash flow can unsettle lenders quickly.
For investors holding AI-linked shares, including those in emerging markets with exposure to global tech, the results from these companies will show whether the spending boom is being funded comfortably or with growing reliance on borrowed money.
"Investors had expected Meta to bring a large bond deal to market shortly after its earnings announcement," Cheng said.
Source: cnbc.com
