By Tatiana Bautzer and Saeed Azhar NEW YORK, Dec 3 (Reuters) – Big tech companies’ investments in artificial intelligence and busier M&A activity will raise the volume of debt issuance by investment-grade companies next year, bank executives said on Wednesday during a panel at the Reuters NEXT conference in New York. The funding needs of […]
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AI investment, M&A poised to increase corporate financing needs next year
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By Tatiana Bautzer and Saeed Azhar
NEW YORK, Dec 3 (Reuters) – Big tech companies’ investments in artificial intelligence and busier M&A activity will raise the volume of debt issuance by investment-grade companies next year, bank executives said on Wednesday during a panel at the Reuters NEXT conference in New York.
The funding needs of the top five U.S. technology firms could reach almost $100 billion in 2026, Meghan Graper, global head of debt capital markets at Barclays, said.
Big tech firms are turning aggressively to debt markets in their race to build AI-ready data centers, a shift for Silicon Valley firms that typically relied on cash to fund investments.
Since September, public bond issuance by four of the major cloud-computing and AI platform companies known as “hyperscalers” has hit nearly $90 billion.
M&A DEAL BACKLOG
The large backlog of M&A transactions that may need funding will also be an important factor in increasing the issuance volume. Currently, there are $175 billion in announced M&A transactions among investment-grade corporations, more than double the $75 billion a year ago.
Anish Shah, Morgan Stanley’s global head of debt capital markets, expects increased activity from private-equity companies, or sponsors. “The big catalyst is that sponsors have much more confidence to bring assets to market if they know they can run a credible dual track and that the IPO is actually a viable alternative. Our IPO backlog for sponsors is at a post-COVID high,” he said.
Shah is also optimistic about a higher volume of large corporate M&A deals next year.
The executives said investors are not worried about the potential for circular financing among large tech and artificial intelligence companies, such as OpenAI. “If you look at what we finance, the credit backs assets that exist; they are in the middle of the desert somewhere”, said JPMorgan Chase’s global co-head of investment grade finance, Marc Baigneres, referring to the data centers.
Shah said the companies issuing debt have highly diversified cash flow. “Their investments individually represent very small components of their businesses overall. I don’t think there is systemic risk,” he added.
(Reporting by Saeed Azhar and Tatiana BautzerEditing by Rod Nickel)