One more update from this week that shows yet another reason why investors are “afraid” of high investment and debt at the expense of AI.
$META issued euro-denominated bonds for the first time in its history this week. And, perhaps unsurprisingly, it reported record demand. Investors placed orders worth around 53 billion euros, the most for any corporate bond issue in Europe. The previous record was held by AB InBev, with more than 31 billion euros in 2016.
Meta wanted to raise up to 9 billion euros in six tranches with maturities ranging from 4 to 38 years. In the end, it sold around 8.25 billion euros’ worth of bonds. The day before, it sold dollar-denominated bonds worth 15 billion dollars, and the longest, 30-year tranche carries a 7.5% coupon. The money will go toward building data centers for artificial intelligence. It’s not Google $GOOG with its 100-year bonds, but it’s still a long time. And at a fairly high cost, something I wouldn’t forget.
The huge oversubscription shows that, although I’m already a little surprised by it, the debt market is willing to finance AI investments by large tech companies, even as it demands ever-higher interest rates.
What matters, though, is that Meta’s debt is growing. The company’s total debt is around 83.7 billion dollars, and Meta is issuing shares as well as bonds. According to reports, S&P changed its rating outlook to negative due to the risk that free cash flow could fall to a deficit of 71 billion dollars in 2027.
This is something the market is paying close attention to with these hyperscalers, and will continue to do so. I don’t have Meta in my portfolio.