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Good morning. The tech sector, long synonymous with equity, has embraced debt with a new fervor.
It’s worth taking a minute to put the scale of the AI-driven debt-raise in perspective. That perspective is increasingly necessary as leaders face the challenge of making sure their companies and organizations are prepared to put massive computing power and intelligence to constructive, good use.
Those are exactly the sort of conversation that I am looking forward to later today as the WSJ Technology Council Summit gets underway in Palo Alto. This newsletter will have highlights of the two-day event.
The growing role of debt in tech captures how tech is changing. Debt unlocks the potential for greater growth and scale, albeit with more risks to companies, lenders and the economy should things go wrong.
Debt was always a factor in tech, but it generally played a secondary role to equity, which provided the currency to compensate founders and early hires, driving innovation and company formation. But equity isn’t sufficient to fund AI and data center construction on the historic scale that is underway.
As Bloomberg reported Monday:
Morgan Stanley expects hyperscalers to borrow $400 billion this year, up from $165 billion in 2025. The offering spree will likely drive high-grade debt issuance to a record $2.25 trillion this year, Vishwas Patkar, head of US credit strategy at the bank, wrote in a note on Monday.
Alphabet debt issuance plans became clearer yesterday, the WSJ reports:
Alphabet is gearing up to sell bonds that won't come due for a century, as it becomes the second big tech company to tap the bond market this year after Oracle issued $25 billion of debt a week ago.
The Google parent plans to sell debt in dollars, British pounds and Swiss francs with varying maturities, according to an investor familiar with the matter. That will include debt with maturities of three to 100 years for the sterling debt, and of three to 25 years for the Swiss francs.
The dollar bonds will total $20 billion, up from the initially expected $15 billion, the investor said.
Nvidia CEO Jensen Huang told CNBC on Friday that the massive capital expenditures driving such debt issuance are “justified, appropriate and sustainable,” because they reflect massive untapped demand that will drive cash flows. Huang called it the largest infrastructure buildout in human history.
As the WSJ said on Saturday, the data center buildout is “bigger than the railroad expansion of the 1850s, the Apollo space program that put astronauts on the moon in the 1960s and the decadeslong build-out of the U.S. interstate highway system that ended in the 1970s.”
Ultimately, the success of this massive buildout will depend upon what individuals and companies decide to do with those resources. As the WSJ Technology Council meets, I look forward to hearing directly from companies about what’s working and what isn’t.
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