Nvidia became the latest tech giant to sell bonds on Monday, offering up $25 billion. Other tech giants, including Amazon and Alphabet, have also gone to the bond market to raise billions in recent months. Alphabet, the parent company of Google, offered new shares of stock for the first time in 20 years.
It’s not unusual for corporate America to raise money through debt or equity. What’s different with these tech firms is they’re also sitting on a lot of cash. But Big Tech is building out massive infrastructure right now, and will take all the capital it can get.
Really, this is all about data centers.
Big Tech 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 firms hundreds of billions of dollars collectively, in this year alone.
“This is an unprecedented level of capital expenditure for most of these companies,” said Julie Ask, a tech analyst and founder of Ask Advisory.
The cash they have on hand is not enough. So that’s why they’re going to the bond and equity markets, said Brent Thill, managing director of tech research at Jeffries.
“You can’t fund this by just straight equity or straight debt. You need a collection of financing vehicles to fund this AI boom,” he said.
For Big Tech, now is a good time to get that financing. 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 Kunst, head of Cleo Capital, said 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,’” she said.
That is, before investors change their minds, said 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,” he said.
As the AI boom goes on, investors will want to see companies actually make a return on all this data center investment, said Brent Thill at Jefferies.
“This is what’s concerning investors, is when you look at the type of spend, are we going to get the ROI?” he said.
The answer, Thill said, might not be clear for a few more years. 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,” Thill said. And the dot-com bubble didn’t start to burst until 2000.