From the Wall Street Journal via MSN, October 30:
For years, the companies behind America’s artificial-intelligence boom have raised hundreds of billions of dollars with ease. Wall Street eagerly ponied up capital and asked few questions.
Now, the balance of power is shifting.
Lenders and investors are getting choosier about where to place their bets and are demanding tougher terms, signaling a new phase in the AI build-out. Among their concerns: the prospect of delays in big projects as a grassroots political backlash to data centers gains traction, and the threat that AI-related profits from hyperscalers and startups such as Anthropic and OpenAI won’t materialize as fast as promised.
Plus, a flood of stock and bond offerings is compounding concerns that investors are getting overexposed to AI.
The new terms of trade are visible in every corner of markets. Bonds issued even by big tech companies such as SpaceX and Meta are trading at steep discounts. AI cloud companies such as CoreWeave, Nebius and Nscale that borrow big to build and sell capacity have effectively been shut out of the bond market in recent weeks, people familiar with the matter said.
Taken together, it all amounts to a buyer’s market for Wall Street. Even powerful players such as Broadcom are having to sweeten the terms offered to banks to secure loans. “The bar is going higher and higher in terms of proving to lenders that this investment will turn into sufficient revenue,” said Dan Ivascyn, chief investment officer at Pimco. “The weak links are going to suffer first.”
Raising money in equity markets isn’t much easier. Nscale’s hopes of going public next month have been thwarted, while rival Lambda dialed back the valuation it was seeking in a new fundraising round, people familiar with the matter said. And OpenAI has raised less than half of the $30 billion it had initially targeted for its latest funding round, people familiar with the matter said.
The stock market is starting to reflect investors’ nervousness that the AI payoff might not arrive—at least in the near term. Disappointing earnings reports from technology companies this week prompted a rout in AI-related stocks and bonds, leading Friday to one of the biggest market selloffs since AI-mania began. Google parent Alphabet sustained its largest stock market wipeout ever Thursday, losing roughly $500 billion in market value, after quarterly results showed revenue from its core search business slowing while spending on AI infrastructure continues to surge.
Tremors in the market also shook chip-maker Intel, which saw its share price plummet 29% on Friday after the company reported weakness in its personal computer business. The tech-heavy Nasdaq composite dropped 2.9% on Friday, its worst day since June. If the volatility continues, fundraising could grow even harder.
There is still money available for creditworthy companies. SpaceX this week announced it raised the biggest-ever financing for AI chips, a $40 billion package that will allow it to purchase the latest lineup of Nvidia chips.
Its record only lasted a few hours, when chip-design giant Broadcom sealed a $63 billion deal to lease chips to Anthropic. But even that deal showed the strains of the current environment: Broadcom Chief Executive Hock Tan had to personally intervene in negotiations at the last minute to calm banks’ nerves.
Even companies that can raise money fret about their suppliers’ ability to do so. Anthropic is aiming to raise up to $100 billion in a mid-November offering. In its IPO prospectus unveiled this week, it called out as a risk factor the financing constraints for the electrical-power providers its data centers rely upon.
Meta cited a desire to beat competitors to the punch when it unveiled a plan to raise up to $97.5 billion through a series of new stock offerings. In a securities filing, it pointed to recent and future offerings from the likes of Alphabet, SpaceX, Anthropic and OpenAI as challenges to the depths of capital markets.
“Everybody is trying to raise money for their build-outs before the liquidity dries up,” said Ben Connard, chief investment officer of Carnegie Investment Counsel.
“Ultimately, there might not be enough money to fund this build-out,” he said. “Financing could be the ultimate crunch that slows things down.”....
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