Big Tech’s Debt Binge Raises Risk in Race to Create an AI World

Bond

Stocks

Summary:

The enormous sums major technology companies are spending on AI are nothing new, but the record pile of debt they’re raising to do it is.

Equity investors are growing increasingly concerned about the amount of leverage that Big Tech is taking on to build out its artificial intelligence infrastructure as the industry faces rising fears of a bubble.

The enormous sums major technology companies are spending on AI are nothing new, but the record pile of debt they’re raising to do it is. What’s worrying stock traders is the trend represents a break from recent history, when companies tapped their huge cash piles to pay for their capital expenditures. The use of leverage and the circular nature of many of the financing deals introduces a level of risk that wasn’t there before.

“I view this as the AI story maturing and entering a new phase, one that is likely to be marked by more volatility and additional risk,” said Lisa Shalett, chief investment officer of Morgan Stanley’s wealth management arm.

The Nasdaq 100 Index rose 1.6% on Friday. Nvidia Corp. shares swung between slight gains and losses for most of the session, but spiked in the afternoon after Bloomberg News reported that US officials are having early discussions on whether to let the company sell its H200 AI chips to China.

Just a few months ago, AI spending was primarily coming from a few companies with strong balance sheets and robust growth in free cash flow. That has changed, and the tech industry’s risk profile has along with it.

The new dynamic was on display Thursday, as tech stocks swung from way up after Nvidia’s strong earnings to way down as investors assessed how much capital will be required to finance an AI world compared with the profitability timelines of those investments.

“We’ve seen an expansion of the ecosystem to include companies with weaker balance sheets like Oracle and CoreWeave, more debt, and we’ve also seen more interlocking and circular revenue relationships,” Shalett said. “That interconnectivity between the players brings systemic risk.”

Valuations among the big tech names have also come in as a result of investor unease. The forward 12-month price-to-earnings ratio of the Bloomberg Magnificent 7 Index has fallen to its lowest in more than two months and is trading in line with its average over the last five years.

The five major spenders on AI — Amazon.com Inc., Alphabet Inc., Microsoft Corp., Meta Platforms Inc. and Oracle Corp. — have raised a record $108 billion in debt combined in 2025, more than three times the average over the previous nine years, according to data compiled by Bloomberg Intelligence.

Oracle’s offerings have come under particular scrutiny. The stock soared in September after the company sold $18 billion in US investment-grade bonds to ramp up its AI spending and banks launched a $38 billion debt offering to fund data centers tied to Oracle. But since hitting a record high on Sept. 10, the shares have plunged 40% as investors reassess what the company’s aggressive capex is doing to its balance sheet and how it is financing its huge capital expenditures. The stock is on track for its biggest one-month drop since August 2001.

Five-year credit default swaps on Oracle, which reflect leverage risk, have blown out to their highest level in three years.

“To see Oracle’s CDS go up shouldn’t be surprising,” said Arnim Holzer, global macro strategist at Easterly EAB. “These companies are investing massive amounts and committing to massive amounts of capex, some of which will be financed with debt. This doesn’t mean Oracle’s stock is trash, but it should be more volatile.”

Oracle has forecast $35 billion in capital expenditures in its current fiscal year, with much of it going to its cloud business. The spending is taking a toll on the company’s balance sheet, with free cash flow expected to be negative $9.7 billion this year after falling into the red last year for the first time since 1990. The deficit is projected to expand in the subsequent two fiscal years, reaching negative $24.3 billion in fiscal 2028.

S&P Global Ratings recently revised its outlook on Oracle to negative “because of its strained credit profile from anticipated capex and debt issuance to fund accelerating AI infrastructure growth,” it wrote in a note dated Nov. 6.

But the credit binge isn’t just on Oracle. Meta has issued $30 billion worth of bonds, Alphabet sold $38 billion, and Amazon.com Inc. raised $15 billion, according to Bloomberg Intelligence.

“We might just be in the beginning stages of an AI capex buildout, but that sort of also implies we’re probably in the early stages of releveraging balance sheets,” said Robert Schiffman, senior credit analyst at Bloomberg Intelligence. “I would be worried that this flood of issuance is probably just the start of things to come for the next couple of years.”

Until recently, capex was accepted as a necessity of participating in AI. Some investors even viewed it as a positive reflection of confidence by the companies. But it’s coming under increasing scrutiny as those Wall Street pros want to see stronger returns on the investments. Adding debt to the equation only sharpens that issue.

“When companies that don’t need to borrow are borrowing to make investments, that sets a bar for the returns on those investments,” said Bob Savage, head of markets macro strategy at BNY. “We’re in a ‘show me the money’ phase.”

Still, despite the increased leverage, investors remain generally positive on megacap tech stocks due to their durable earnings growth and strong competitive positions. What’s more, about 80% to 90% of planned capex from big tech firms is coming from their cash flows, according to UBS estimates.

“It seems a little overblown to say that these offerings are a major turning point and that the AI hype bubble will be burst,” Savage said. “The debt could complicate the story, but I don’t think it changes the thesis.”

Source: Bloomberg

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Manuel

Political

Commodity

President Volodymyr Zelenskiy said Ukraine risks losing its key partner after the US threatened to cut off support unless Kyiv agrees to a peace deal that would force it to cede territory to Russia, cap the size of its military and pledge never to join NATO.

“Now it’s one of the most difficult moments in our history,” Zelenskiy said in a video address to the nation on Friday after he was presented with a 28-point peace plan drafted by the US and Russia. “Ukraine may face a hard choice — either the loss of our dignity or the loss of our key partner.”

Kyiv’s biggest European allies have lined up with Zelenskiy to push back against elements of the plan, which would force Ukraine to give up large chunks of territory taken by Russia, acceding to many of President Vladimir Putin’s wartime demands.

The US increased pressure on Zelenskiy to agree to the deal with a threat to stop intelligence-sharing and weapons supplies to Ukraine unless Kyiv agrees to the peace plan by next Thursday, according to people familiar with the matter.

President Donald Trump, speaking Friday to Fox News Radio, said Ukraine is losing land and the US just wants “the killing to stop.” He declined to characterize the timeframe as a deadline and said the US had no plans to lift sanctions against Russia for now.

“I’ve had a lot of deadlines, but if things are working well, you tend to extend the deadlines,” he said. “Thursday is, we think, an appropriate time.”

The scope for Zelenskiy to avoid making major concessions to Moscow is narrowing as his country faces deadly Russian air strikes on energy infrastructure ahead of winter and uncertainty over continued western support.

At the same time, the dramatic acceleration in the US push to cut a deal with Moscow has left Kyiv’s European allies scrambling for a response. The European Union has been struggling to agree on a mechanism that would unlock about €140 billion ($160 billion) to sustain the Ukrainian war effort as the US dials back its support for Kyiv.

Zelenskiy said in a social media post later Friday that he spoke with US Vice President JD Vance and Army Secretary Dan Driscoll, who traveled to Kyiv to discuss the issue, for almost an hour.

“We managed to cover a lot of details of the American side’s proposals for ending the war, and we’re working to make the path forward dignified and truly effective for achieving a lasting peace,” Zelenskiy wrote. “We agreed to work together with the U.S. and Europe at the level of national security advisors to make the path to peace truly doable.”

German Chancellor Friedrich Merz, France’s Emmanuel Macron and Keir Starmer of the UK agreed on a call with Zelenskiy on Friday that Ukraine’s armed forces must remain capable of defending its sovereignty and that the current line of contact should be the starting point for any peace talks, according to a statement from the German government.

Putin also weighed in Friday, again accusing Kyiv of being the obstacle to peace and suggesting that it was the US and not Russia that had proposed the latest agreement.

“We received it through existing channels of communication with the American administration,” Putin said. “I believe it could also form the basis for a final peace settlement, but this text hasn’t been discussed in detail with us.”

Under the plan, a copy of which was seen by Bloomberg News, the Ukrainian regions of Crimea, Luhansk and Donetsk would be “recognized as de facto Russian, including by the United States,” Ukraine would also be required to hold elections in 100 days, give up any hope of NATO membership and slash the size of its armed forces.

European leaders will now meet on the sidelines of the Group of 20 conference in South Africa on Saturday to map out the next steps, according to a person familiar with matter. Finnish President Alexander Stubb, who’s earned the reputation of having the ear of Donald Trump, is also expected to join, according to a person briefed on the plans, who asked not to named because the talks are private.

There are doubts among European leaders about the status and legitimacy of the plan, one official said. They also characterized it as tantamount to a capitulation by Ukraine with Russia getting what it wants, the official added, requesting anonymity to talk freely on the matter.

The plan appears to maximize the potential for future Russian hybrid and false-flag operations that would see Moscow claim Ukraine breached the terms and then re-invade, a senior European official said. The official added that it resembled Russia’s demands at previous talks and was unacceptable to Europe and Ukraine.

“It’s about a just and lasting peace, and we consider elements of this plan to be effective towards this goal,” German government spokesman Stefan Kornelius told reporters in Berlin on Friday. “We want to participate constructively in guiding this into a dynamic that will bring us closer to our goal of a lasting peace in Ukraine.”

Many details of the plan are proposals that have been rejected by Ukraine and its allies in the past. NATO member states may also object, given that the plan would curtail the defense alliance’s ability to admit new applicants as it sees fit. Such a move would need the buy-in of all 32 of its members.

The plan entails Ukraine receiving a US security guarantee — albeit one that Washington would be compensated for. The US would also get 50% of profits to rebuild and invest in Ukraine, and enter an economic partnership with Russia once sanctions are lifted.

The latest proposal was worked out between Trump’s envoy Steve Witkoff and Putin’s representative Kirill Dmitriev, according to people familiar with the matter. It follows past Witkoff efforts that Ukraine has been wary of and faced almost immediate opposition from Europe.

Source: Bloomberg

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Justin

Economic

The $7 trillion market for securities linked to US inflation will employ fallback mechanisms for the first time after the longest government shutdown in history derailed economic data collection.

The nation's Bureau of Labor Statistics said it was cancelling its October consumer price index report, saying it was unable to retroactively collect some data. The inflation-protected segment of the US Treasury bond market and US inflation derivatives both use the CPI to determine how much investors get paid.

The lack of official data will trigger contingency plans written into legal documentation decades ago, with the added wrinkle that the bond and derivatives markets use different fallbacks.

The he cancellation was widely anticipated. White House officials Oct. 24 said October inflation data probably wouldn't be released, and the BLS said Wednesday that the October unemployment rate wouldn't be calculated because of the Oct. 1 to Nov. 12 shutdown.

"Even before the announcement, it was general consensus that the fallback would be activated for October, so the market had largely already priced this in," said Jon Hill, head of US inflation strategy at Barclays Capital Inc.

While past shutdowns delayed publication of economic data, until now the BLS hasn't failed to produce a major report.

The lack of data is a headache for investors in general at a time when US inflation — despite having receded from the generational highs reached in 2022 amid pandemic-related supply-chain disruptions — continues to exceed the Federal Reserve's 2% target. As a result, several Fed policymakers are opposed to lowering interest rates further after two cuts this year in response to signs of job-market stress.

That's increased the power of inflation data to move markets, and some Fed officials have said the lack of data is a justification for pausing rate cuts at their next meeting scheduled for Dec. 9-10.

The BLS said it will publish November CPI data on Dec. 18, meaning the latest official inflation data available to the rate-setting committee will be from September.

The BLS typically gathers pricing information from roughly 80,000 items across the country, mostly in-person. While the agency recalled staff to prepare the September CPI report — which was needed for US Social Security to calculate its annual cost-of-living adjustment — October data weren't collected.

The agency said it can acquire most of the non-survey data for October and "where possible" will publish such values in the November release.

For Treasury Inflation-Protected Securities, or TIPS, monthly CPI values are used to interpolate daily index ratios that determine — with a time lag — accrued interest, which is due to the seller of a bond by its buyer. The October CPI would be used to interpolate values for Dec. 2 to Jan. 1, 2026.

In the absence of a published CPI value, regulations for TIPS call for a synthetic number "based on the last available twelve-month change in the CPI," in this case from September 2024 to September 2025.

Inflation derivatives use a different fallback, creating a divergence between TIPS, a $2 trillion market, and swaps.

Standard inflation swap contracts — with a notional value outstanding of about $4.5 trillion at LCH, the clearinghouse unit of London Stock Exchange Group — employ International Swaps and Derivatives Association rules. If the derivative is not linked to a specific bond, ISDA's fallback calculation applies the September 2025 year-on-year change to the October 2024 level.

The difference in methodology leads to diverging payouts. For October, the TIPS fallback would produce an index reading of 325.604, while the swaps fallback would be 325.174, according to Bloomberg calculations.

TIPS maturing in January 2026 greatly outperformed inflation swaps in recent weeks, "reflecting the market pricing in a meaningful probability of the fallback being activated," Barclays' Hill said.

Earlier this month, ISDA issued guidance on how the swap fallbacks would be triggered "in the interest of mitigating market risk and the promotion of orderly valuation and settlement of positions by market participants."

Source: Bloomberg Europe

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Justin

Economic

The U.S. Labor Department will not release the October Consumer Price Index (CPI) due to a government shutdown, rescheduling the November report for December 18, 2025, as stated by Jin10 data.

This delay affects market volatility, influencing cryptocurrencies such as BTC and ETH, as U.S. CPI figures guide interest rate expectations and monetary policies.

Government Shutdown Delays CPI Report, Markets React

The U.S. Labor Department cites the government shutdown as the reason behind the absence of the October CPI report. BLS leadership faces capacity challenges due to vacant positions, and essential staff are affected by ongoing hiring freezes. The immediate impact on financial markets is notable, given the relevance of CPI data to interest rate expectations and monetary policy decisions. Analysts anticipate a significant reaction in the prices of key cryptocurrencies, particularly those sensitive to U.S. economic indicators.

To date, no government officials have publicly commented on this specific report cancellation. However, the lack of critical economic data prompts discussions in financial sectors about its wider implications.

"The BLS calendar contains publication dates for most news releases scheduled to be issued by the BLS national office in upcoming months. ... The calendar is updated as needed with additional news releases, usually at least a week before their scheduled publication date." — U.S. Bureau of Labor Statistics, Official Entity, BLS

Source: CryptoSlate

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Adam

Economic

As we share below, the odds of a Fed Funds rate cut at the December FOMC meeting are down to 33%. On Wednesday, there was an abrupt repricing of rate cut odds after the BLS cancelled the October employment report and delayed the November data until December 19th. Furthermore, the BLS JOLTS report for September has been canceled, and the data for October will be released on December 9th.

For reference, the FOMC meeting is on December 10th, so they will lack meaningful employment data when deciding whether to cut rates. The weakening labor market is the predominant reason the Fed cut rates by 25 bps at each of its last two meetings.

Despite the absence of recent employment data, Fed officials will argue that they can still assess the labor market using alternative data sources. Markets do not agree, as judged by the downgrade in rate-cutting odds. For what it’s worth, the last two weekly ADP employment change reports show a decline of 11,250 jobs in the last week of October, and another loss of 2,500 jobs in the first week of November.

In other Fed news, the minutes from the FOMC’s October meeting, released on Wednesday, show a deep divide over whether to cut interest rates at the December meeting. Several officials noted that progress in lowering inflation has “stalled” and cautioned that further rate cuts could risk entrenching higher inflation and undermining the Fed’s credibility regarding its 2% inflation target.

However, another group argued that further cuts are necessary to guard against rising unemployment and some signs of weakening economic growth. Per the minutes:

“Participants generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased since the first half of the year.”

Rate Cut Odds Slip Due to Lack of Data_1

Nvidia Hits Another Home Run

Once again, NVIDIA (NASDAQ:NVDA) reported stellar quarterly earnings. For the third quarter, the company reported revenue of $57.0 billion, surpassing analyst expectations of $55.4 billion. The increase represents a 62% year-over-year rise and a 22% increase compared to the prior quarter. Not surprisingly, their data center segment accounted for a significant portion of the revenue ($51.2 billion). Adjusted earnings per diluted share came in at $1.30, beating Wall Street’s $1.26 forecast. Per Nvidia’s CEO Jensen Huang,

Blackwell sales are off the charts, and cloud GPUs are sold out. Compute demand keeps accelerating and compounding across training and inference — each growing exponentially. AI is going everywhere, doing everything, all at once.

It’s not just the sales and earnings growth that make Nvidia’s story bullish; its gross margins were little changed at a whopping 73.4% on a GAAP basis. Furthermore, as in prior reports, they continue to provide forecasts that exceed Wall Street’s expectations. The initial market reaction was positive, with the stock gaining about 5%.

Rate Cut Odds Slip Due to Lack of Data_2

The screenshot below, courtesy of FinViz, shows that with the new earnings data, Nvidia has a PEG ratio of 1.10. That is cheaper than the S&P 500 and well below some of its technology-sector competitors. The PEG ratio below assumes a P/E ratio of 48 and a five-year future EPS growth rate of 44%. While such growth is a tall order, it is a good bit slower than their 65% EPS growth over the last year. This leaves us with two questions to ponder:

Is Nvidia’s earnings report enough to alleviate recent fears of a bubble in the AI industry?

Might Nvidia be a value stock?

Rate Cut Odds Slip Due to Lack of Data_3

Nvidia: The Bearish Take

The prior section spoke highly of Nvidia’s earnings announcement. We thought it would also be helpful to point out some aspects of the report that some claim are not so positive.

The first graph below shows that inventories are up 32% quarter over quarter. If their GPUs are sold out, why is the inventory increasing rapidly?

Accounts Receivable grew by $5.58B in the last quarter. Take away growth in accounts receivable and revenue missed expectations by $3.49 billion.

A significant discrepancy between the net income declared of nearly $32B and the operating cash flow of $24B. Some claim this is due to creative accounting.

The second graphic below is a tweet from Michael Burry. He has recently claimed that companies are using depreciation schedules for Nvidia chips that exceed the chips’ useful lives. Doing so props up earnings by reducing expenses. Accordingly, better-perceived financial health allows companies to finance CAPEX, which ultimately flows to Nvidia.

Rate Cut Odds Slip Due to Lack of Data_4

Source:investing

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Adam

Economic

Investors are growing uneasy that the rapid rise in public debt used to bankroll AI investments could strain the U.S. corporate bond market and eventually dampen the appeal of tech stocks, despite leverage across most major companies remaining low for now.

Big tech firms are turning aggressively to the debt markets in their race to build AI-ready data centers, a shift for Silicon Valley firms that typically relied on cash to fund their investments.

Since September, public bond issuance by four of the major cloud computing and AI platform companies known as "hyperscalers" has hit nearly $90 billion, with Google owner Alphabet (GOOGL.O) selling $25 billion in bonds, Meta (META.O) $30 billion, Oracle (ORCL.N) $18 billion, and Amazon (AMZN.O), the most recent, $15 billion, according to Reuters calculations of publicly available data. Only Microsoft (MSFT.O), the fifth one, has not tapped the debt market in recent weeks.

Investors say that, so far, they are not overly concerned about the impact on stock valuations because of the recent fundraising, since these companies remain lightly leveraged relative to their scale.

But the sudden pickup in public debt issuance has raised questions about the market’s ability to absorb the surge in supply and is feeding into growing worries over AI-related spending that have helped trigger a sharp pullback in U.S. stocks this month after six months of gains. The S&P 500 is still up 11% this year, with tech stocks among the main contributors to gains.

"You have all these hyperscaler issuance coming out, and I think the market woke up to the fact that it's not going to be private credit markets that are going to fund AI, it's not going to be free cash flow. It's going to have to come from the public bond markets," said Brij Khurana, portfolio manager at Wellington Management Company.

"You need capital to come from somewhere to finance this," he said. "What's happening is a recognition that you need money almost coming out of stocks into bonds."

Including a $27 billion financing deal Meta struck with Blue Owl Capital in October to fund its biggest data center project, hyperscaler debt issuance has jumped to over $120 billion this year from an average of $28 billion over the past five years, analysts at BofA Securities said in a recent note.

Rising debt at tech companies adds a new layer of concern to a market that, despite being fueled by the promise of high AI returns, remains wary that the technology has yet to deliver the profits needed to justify such large capital spending.

"There are doubts that have emerged in the last few weeks around the AI spend story that are related to ... the need for firms to be able to finance that, and that includes through debt finance," said Larry Hatheway, global investment strategist for Franklin Templeton Institute.

AI capital expenditure is projected to increase to $600 billion by 2027, up from over $200 billion in 2024 and just under $400 billion in 2025, and net debt issuance is expected to reach $100 billion in 2026, Sage Advisory, an investment management firm, said in a recent note.

While hyperscalers have been ramping up borrowing, Nvidia (NVDA.O), a major supplier of computing power to them, has trimmed its long-term debt from $8.5 billion in January to $7.5 billion by the end of the third quarter. Credit ratings agency S&P Global Ratings last month revised its outlook on the company to "positive" from "stable," citing revenue growth and robust cash flow.

Microsoft and Oracle declined to comment. An Amazon spokesperson said proceeds from its recent bond sale will fund business investments, future capex, and repay upcoming debt maturities, noting that such financing decisions are part of routine planning. Alphabet and Meta did not immediately comment.

MARKET CONSTRAINTS

Demand for recent tech bond deals has been strong, but investors demanded sizeable new issue premiums to absorb some of the new securities. Alphabet and Meta paid about 10-15 basis points over the companies' existing debt with their most recent debt issues, said Janus Henderson in a note.

While U.S. investment grade credit spreads - which indicate the premium highly rated companies pay over Treasuries to attract investor demand - remain historically low, they have ticked up in recent weeks, partly reflecting concerns over the new wave of bond supply hitting the markets.

Jitters over AI spending set to grow as US tech giants flood bond market _1

Chart shows that US investment grade credit option-adjusted spreads over Treasuries have recently hit their highest in six months

"For much of the year, credit spreads have been grinding tighter ... But the recent deluge of supply – particularly from tech – may have changed the game," said Janus Henderson.

To be sure, the shift to debt is expected to remain a small portion of total AI spending by large tech companies, with UBS recently estimating that about 80-90% of their planned capital expenditure still comes from cash flows. Sage Advisory's research said the top hyperscalers are expected to move from having more cash than debt to just modest levels of borrowing, still keeping leverage below 1×, meaning their total debt would be less than what they earn.

"Supply bottlenecks or investor appetite are more likely to act as constraints on near-term capex than cash flows or balance sheet capacity," analysts at Goldman Sachs said in a note this week.

Excluding Oracle, hyperscalers could absorb up to $700 billion in additional debt and still be viewed as safe, keeping leverage below that of the typical A+ rated firm, they said.

"These companies still have very solid business lines that are just spinning off tons of cash," said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions.

Source: reuters

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Devin

Economic

The weakness from the preliminary UMich data for November has been confirmed with the final sentiment print confirmed the so-called 'K-shaped' economy as sentiment slumps with stocks near record highs.

However, the small silver lining with today's UMich data was an improvement intra-month from 50.3 to 51.0 for the headline (but still at its lowest since June 2022).

After the federal shutdown ended, UMich Director Joanne Hsu notes that sentiment lifted slightly from its mid-month reading.

However, consumers remain frustrated about the persistence of high prices and weakening incomes.

Under the hood, Expectations picked up modestly from 50.3 to 51.0, just off record lows, while Consumer Expectations plunged to 51.1 - the lowest in the survey's history going back to 1977...

Source: Bloomberg

Who the hell are they surveying?

Interestingly, while Democrat's confidence remains vastly worse than the rest of the political cohorts, November saw Republicans and Independents lose some faith too...

Source: Bloomberg

On the bright side, inflation expectations tumbled. After four months of sharp increases to start 2025, long-run expectations fell for three consecutive months through July, followed by three more months of small increases. Long-run expectations softened considerably this month. The November reading is well below peaks in monthly readings from June 2022 and April 2025, but still above 2024 readings.

Source: Bloomberg

Expectations exhibit substantial uncertainty, particularly in light of ongoing developments with economic policy and concerns that impacts on inflation are still to come.

Democrats continue to lead the fear of inflation (though dropped to January lows this month)...