“Borrowing to Fund AI Investment”: U.S. Big Tech’s Debt Buildup Puts Upward Pressure on Corporate Bond and Treasury Yields

SpaceX pursues another major financing round, adding to its borrowings after its IPO
Alphabet, Amazon and Meta sharply increase bond issuance as AI investment costs soar
Growing private-sector debt supply adds to upward pressure on U.S. Treasury yields

SpaceX, the aerospace company led by Elon Musk, is pursuing another major financing round. The company is seeking additional borrowings just months after raising substantial sums through its initial public offering (IPO) and debut corporate bond sale. Market participants note that this trend extends well beyond SpaceX to the broader Big Tech sector. Major hyperscalers, including Alphabet, Amazon and Meta, are also sharply increasing corporate bond issuance to cover the cost of artificial intelligence (AI) infrastructure investment, with the resulting surge in private-sector debt supply seen as putting upward pressure on both corporate borrowing costs and U.S. Treasury yields.

SpaceX Seeks External Financing

The Financial Times (FT), citing people familiar with the matter, reported on October 7 that SpaceX plans to raise $40 billion to finance purchases of Nvidia chips. The proposed financing comprises $10 billion in bank loans and $30 billion in investment-grade corporate bonds. U.S. private equity firm Apollo Global Management is leading the overall financing, while PIMCO, the world's largest bond manager, is also reportedly considering an investment. The transaction is expected to close next year, although talks remain at an early stage and the deal could still fall through.

The bonds would be issued on the strength of SpaceX's own credit. SpaceX currently holds a BBB credit rating, placing it within the investment-grade category and making its bonds eligible for purchase by large institutional investors such as insurers and pension funds. However, recent declines in the prices of SpaceX's outstanding bonds suggest that the proposed offering may also need to carry higher yields. Its existing 30-year bonds have fallen to approximately 85% of face value, while their spread over U.S. Treasuries has widened to about 227 basis points, with one basis point equal to 0.01 percentage point. That is a level typically associated with junk-rated debt. The new 30-year bonds are expected to be priced at yields approaching 7.5–8%.

The Largest IPO on Record

The repricing of SpaceX's bonds appears to reflect market unease over the company's debt burden. Just a few months earlier, SpaceX had raised a record sum through its IPO. When trading began on Nasdaq and Nasdaq Texas on June 12, the offering price was set at $135 per share, and the company initially raised $75 billion by issuing 555.55 million new shares of Class A common stock.

The offering was structured primarily to raise fresh capital for the company rather than to allow existing shareholders to cash out. According to offering documents filed with the U.S. Securities and Exchange Commission (SEC), all 555.55 million shares in the base offering were newly issued, as were the 83.33 million shares covered by the underwriters' overallotment option. The underwriters subsequently exercised that option in full, bringing the total number of Class A shares issued and sold to 638.88 million when the IPO formally closed on June 15. Gross proceeds totaled approximately $86.24999 billion, while net proceeds received by the company after underwriting fees and offering expenses amounted to $85.675 billion.

Table 1. SpaceX's Fundraising Activities

Tapping the Bond Market for Additional Funds

SpaceX also tapped the bond market for substantial funding immediately after its IPO. It launched its debut corporate bond offering on June 22 and finalized the size at $25 billion the following day. The transaction had initially been expected to raise approximately $20 billion, but was expanded after investor orders reached $90 billion. At the time, SpaceX said it would first use the proceeds to repay all outstanding bridge loans and cover related fees, with the remainder allocated to general corporate purposes.

Despite the substantial investor demand, bond pricing clearly reflected concerns over SpaceX's financial burden. Moody's assigned the company an investment-grade rating of Baa1, but the interest rates on its bonds remained above those typically offered by similarly rated corporate issuers. All of the securities were senior unsecured notes, comprising $7 billion due in 2031 with a 5.35% coupon; $6 billion due in 2033 at 5.65%; $6 billion due in 2036 at 5.875%; $2.5 billion due in 2046 at 6.60%; and $3.5 billion due in 2056 at 6.65%. The bonds had a weighted-average coupon of 5.855% and a weighted-average maturity of 11.7 years.

Borrowing Rises Across Big Tech

SpaceX is far from the only major technology company expanding its reliance on external financing. The five leading hyperscalers—Alphabet, Amazon, Meta, Microsoft and Oracle—have traditionally funded capital expenditure through their substantial operating cash flows. That equation has changed rapidly, however, as spending on AI data centers, semiconductors and power infrastructure has reached astronomical levels. According to Bloomberg, Alphabet, Amazon, Meta and Microsoft plan to spend as much as $725 billion on capital expenditure this year, with most of the investment earmarked for AI data centers, servers and semiconductors.

These companies have begun increasing bond issuance to finance their investments. A Reuters analysis of London Stock Exchange Group (LSEG) data showed that Alphabet, Amazon, Meta and Oracle had issued nearly $194 billion in corporate bonds through July 7. That represents a 79% increase over the $108 billion issued during the whole of last year. Global investment bank Goldman Sachs also noted that hyperscaler bond issuance has been rising at an unprecedented pace, forecasting that total issuance by the five companies, including Microsoft, would reach $250 billion this year and climb to $400 billion next year.

U.S. Treasury Yields Also Come Under Pressure

The concentration of such large corporate bond offerings is steadily pushing up companies' financing costs. When bond supply surges, investors demand higher yields to absorb the additional debt, driving up yields on new issues while depressing the prices of outstanding securities. Reuters reported in late July, citing LSEG data, that 78 of 91 comparable hyperscaler bonds issued this year were trading at yields above their issuance levels. The median spread over U.S. Treasuries on two- to four-year bonds issued by Alphabet, Amazon, Meta and Oracle widened from 30 basis points last year to 40 basis points this year. Spreads on five- to seven-year bonds rose from 50 to 60 basis points, while those on long-dated bonds with maturities exceeding 20 years increased from 108.5 to 118 basis points.

These developments are also weighing on the U.S. Treasury market. Highly rated Big Tech companies are drawing in vast amounts of capital by offering yields above those available on government debt, while the U.S. government is simultaneously increasing Treasury issuance to finance its substantial fiscal deficit. When public- and private-sector bond supply rises in tandem, Treasury investors naturally demand higher yields. Goldman Sachs said that corporate debt issuance tied to AI infrastructure investment has already begun to affect the Treasury market this year, putting upward pressure on long-term interest rates alongside fiscal deficits and increased government bond supply.