Data centres on credit: bondholders take on more AI risk
Since 2 November Oracle has been offering $10bn of bonds plus $10bn of new shares; on 30 October S&P cut its outlook on Meta's credit rating to negative.
The biggest builders of AI are increasingly funding data centres with debt and new shares rather than from operating cash. The risk of the build-out is thus moving from shareholders to bondholders as well.
What happened
According to filings with the SEC, America's securities regulator, Oracle is marketing bonds in six tranches maturing between 2029 and 2046, led by BofA, with Deutsche Bank among the banks. Separately, it is selling $10bn of new shares. At its investor day on 28 October Oracle said it would raise up to $20bn of new capital through fiscal 2030, split evenly between debt and equity. In the year to May 2026 it spent $55.7bn on data centres, and at the end of August its balance sheet showed liabilities of $236.1bn. It expects free cash flow to turn positive only in the second half of fiscal 2028; in the first quarter it was minus $5.4bn, and interest expense rose by 55 per cent. The shares fell by about 4 per cent at one point on Monday. For Meta, S&P kept the AA- rating but signalled a possible downgrade: leverage could rise above 1.0x as early as 2027, from about 0.1x last year. Meta lacks a cloud business that rents out computing power, S&P argues. Meta disagrees.
What follows
For investors the question of who pays for the AI build-out is shifting. Where the companies used to buy back their own shares, they are now raising money in capital markets; Alphabet halted buybacks at the end of October, and Meta had just launched a $35bn share sale. Assessment: if rating agencies cut their outlooks further, these companies will pay more for new debt and prices of existing bonds will come under pressure. That would affect bond funds and pension schemes that hold paper from large American technology companies because it was considered especially safe. Whether the investment pays off will become clear only in some years; part of the debt runs until 2046.
What changes in practice
- Fund investors
- Bond funds often hold Oracle and Meta paper. Their risk now depends more on whether the AI build-out pays off.
- Shareholders
- $10bn of new Oracle shares dilute existing holdings; Meta had just launched a $35bn issue.
- Cloud customers
- Renting computing power from Oracle means relying on a supplier that expects positive free cash flow only from the second half of fiscal 2028.
What to watch
- The spread Oracle has to pay when its bonds are priced
- Further outlook changes from S&P, Moody's or Fitch for AI builders
- Free cash flow at Meta and Oracle over the next two quarters
Sources
- Bloomberg: Oracle Launches $10 Billion Sale of US Investment Grade Bonds
- CNBC: Oracle files to sell $20 billion in new stock, bonds to finance AI buildout
- The Next Web: Oracle launches $10B bond sale alongside $10B share offering
- 24/7 Wall St.: Oracle declines 4% as $10 billion bond sale revives AI debt worries
- The Next Web: S&P turns negative on Meta as AI spending eats into its cash
- Taipei Times: S&P cuts Meta's outlook to negative