AI 'Money War': MS Joins In as Big Tech Investment-Grade Bond Issuance Triples

An Astronomical Fundraising War
Investors Flock to MS's Top-Rated Bonds
Even Among Big Tech, Investors Are “Separating the Winners from the Losers”

The race to invest in artificial intelligence (AI) infrastructure is turning into a financing war involving astronomical sums. This year, high-grade corporate bond issuance by Big Tech companies and data center operators has reached nearly three times last year's level, and even Microsoft, which had been cautious about borrowing, has returned to the corporate bond market for the first time in nine years.

Reuters-Yonhap

According to Bloomberg News on Oct. 29 (local time), Big Tech companies and data center developers worldwide have raised more than $313 billion this year by issuing investment-grade corporate bonds. That is about three times the total issued over the whole of last year. Including the $25 billion Microsoft issued that day, total issuance is expected to exceed $338 billion.

Vast funding needs in the AI industry are also driving up issuance across the global bond market. This year, global bond issuance across investment-grade and speculative-grade debt topped $6.6 trillion, reaching a record high. With two months left in the year, issuance is expected to grow further.

Microsoft, which has maintained a cautious approach to borrowing, has also begun borrowing in earnest. That day, it issued $25 billion in dollar-denominated corporate bonds. It was the company's first such issuance in nine years, since it raised $17 billion in 2017. The bonds were divided into 10 maturities, ranging from two to 40 years. The proceeds will be used for general corporate purposes, including capital expenditures.

Microsoft's bond offering drew overwhelming interest from investors. The maximum order volume received during the offering process was $115 billion, 4.6 times the amount issued. According to Bloomberg data, this was the sixth-largest order volume in the history of U.S. investment-grade corporate bond issuance. It was nearly equal to the record order volume set by Alphabet, Google's parent company, in August.

Bloomberg News noted that the strong demand for Microsoft's bonds serves as a reminder that even as concerns about AI investment grow, exceptionally high-quality bonds continue to attract enormous investor demand. Microsoft holds the highest rating, AAA, from both international credit rating agencies Moody's and Standard & Poor's (S&P). It is one of only two U.S.-listed companies, along with Johnson & Johnson, to hold the highest credit rating from both agencies.

Microsoft also faces different interest rates depending on the bond's maturity. The spread on Microsoft's 30-year corporate bonds was 0.95 percentage points over U.S. Treasuries, higher than the 0.6-percentage-point spread on 30-year bonds issued the same week by Procter & Gamble, which has a lower credit rating. This suggests that uncertainty about the long-term profitability of AI companies is also being reflected in corporate bond prices.

Investors have become more cautious about the AI industry. According to an analysis released that day by the London Stock Exchange Group (LSEG), as of Oct. 21, Oracle's five-year credit default swap (CDS) premium stood at 331 basis points (1 basis point = 0.01 percentage points), about 5.9 times Microsoft's 56 basis points. Amazon's was 80 basis points. A CDS is a form of insurance against a company's default; the higher the premium, the greater the credit risk perceived by the market.

"Credit markets are currently playing a significant role in separating winners from losers," said Jack Janasiewicz, multi-asset portfolio manager and lead portfolio strategist at Natixis Investment Managers Solutions. "The bond issuance market is open to companies, but it is not open to every company."

This content was produced with the assistance of AI translation services.