AI corporate bonds are booming
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What are the reasons behind the booming corporate bonds in AI?
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The Federal Reserve started its meeting today. I wonder what Kevin Warsh is going to say tomorrow. From American Public Media, this is Marketplace.
In Los Angeles, I'm Kai Rizal. It is Tuesday. Today, this one is the 16th of June. Good as it always is to have you along, everybody. Kevin Warsh coming up in a minute, but we begin today with a somewhat but not really a hypothetical question. Is there such a thing as having too much money? It's relevant on an individual level as the world tries to decide how it feels about its first trillionaire. But it's also relevant on the corporate level because really big companies sitting on really big piles of cash are going to the capital markets to get more. Alphabet issued $85 billion worth of new shares last month. Amazon and Alphabet as well have gone to the bond market to raise billions in the past couple of months.
Nvidia did the same thing yesterday. The raising cash part isn't unusual. It's the they've already got so much of it. That's the news. Marketplace's Henry Epp gets us going. This is really all about data centers. Big tech, as you know, is all in on artificial intelligence, which takes a massive amount of computing power to run. So they're building out that infrastructure, which is costing them collectively hundreds of billions of dollars just this year. Julie Osk is a tech analyst and founder of Osk Advisory.
This is an unprecedented level of capital expenditure for most of these companies.
And the cash they have on hand is not enough. So that's why they're going to the bond and equity markets, says Brent Phil, managing director of tech research at Jefferies. You can't fund this by just straight equity or straight debt. You need a collection of financing vehicles to fund this AI boom. For big tech, this is a good time to get that financing, because investors have money to put to work, and they still want a piece of the AI boom. Nvidia's bond sale this week, for example, attracted orders three times greater than the bonds on offer, according to Bloomberg. Sarah Kuhnst, head of Clio Capital, says that kind of demand makes borrowing inexpensive. What the CFO's office will be telling the CEO's office is, look, this money is incredibly cheap compared to the normal cost of money, and we should probably go get some.
How much are tech giants investing in AI infrastructure?
Before investors change their minds, says Dan Ives, head of tech research at Wedbush Securities.
We're in the window where capital is there. Six months from now, that capital might be narrowed.
Because as the AI boom goes on, investors will want to see companies actually make a return on all this data center investment, says Brent Thill at Jefferies. And this is what's concerning investors is when you look at the type of spend, are we going to get the ROI? The answer, Thill says, might not be clear for a few more years. And he thinks this AI hype cycle might also have years to go. To put it in terms of the internet boom a generation ago. It feels more like mid-90s at this point. And the dot-com bubble didn't start to burst until 2000. I'm Henry Epp for Marketplace. Wall Street today, tech not so good, most of the rest kind of a wash. We will have the details when we do the numbers.
This is Fed Week for those who observe.
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Chapters
8 chapters
1
What are the reasons behind the booming corporate bonds in AI?
0:02–3:37
2
How much are tech giants investing in AI infrastructure?
3:37–7:08
3
What challenges do companies face in showing returns on AI investments?
7:08–11:00
4
How is the solar energy market evolving in relation to federal tax credits?
11:00–14:00
5
What does Fox's acquisition of Roku mean for the streaming industry?
14:00–17:21
6
How has the Federal Reserve's approach to press conferences changed over time?
17:21–20:07
7
What impact do economic conditions have on farmers in Washington State?
20:07–24:03
8
How is AI influencing real estate trends in San Francisco?
24:03–27:12