SAN FRANCISCO / LONDON (IT BOLTWISE) – Artificial intelligence is experiencing an unprecedented investment boom, but this is increasingly being slowed by rising financing costs. Big tech companies like Amazon and Meta are relying on massive debt to finance their AI projects, but the markets are reacting sceptically. Recent developments raise questions about the long-term stability of AI investments.
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Artificial intelligence has experienced a huge rise in recent years, with companies such as Amazon, Alphabet and Meta investing billions in the development of new technologies. However, these investments are increasingly financed by debt, raising questions about sustainability. Since September, these companies have issued nearly $90 billion in corporate bonds, alarming markets.
Although demand for these bonds remains high, cracks in investor confidence are beginning to appear. The prices of newly issued bonds fall while yields rise. This is happening at a time when the share prices of tech giants are also coming under pressure. The Nasdaq lost more than six percent in November, raising questions about whether AI investments are really as low-risk as long thought.
Meta and Oracle are particularly the focus of skeptics. While Alphabet and Amazon can finance their investments from current cash flows, Meta and Oracle had to offer higher interest rates on their bonds. Meta had to accept noticeably higher interest rates on a $30 billion issue, raising doubts about the company’s financial resilience. Oracle, which wants to enter the top league of cloud and AI providers, faces the challenge of maintaining its credit rating to finance further bond issuance.
The boom in data center construction creates additional risks. New players such as former Bitcoin miners are entering the market and offering high-yield bonds. Coreweave, a sub-investment-grade AI cloud provider, has to offer returns of around 11 percent, which is typically reserved for companies that are close to default. These developments show that markets are beginning to reassess the risks of AI investments.
Rising financing costs could lead to investments in AI becoming more selective. While large tech companies are still able to finance their projects, smaller providers may have difficulty asserting themselves in the market. Experts expect a phase of selection in which only projects with clear economic logic and a solid capital structure will survive. These developments are reminiscent of the dot-com era, in which few companies emerged from the wave of investment unscathed.
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