Debt-reliant AI companies face rising risk as bond yields spike

Companies heavily reliant on debt financing for their artificial intelligence ventures are facing escalating borrowing costs as U.S. Treasury yields climb to their highest levels since 2007. This trend is set to further increase the expense of building out AI infrastructure, which is already a significant undertaking.

JPMorgan Chase estimated in June that $4.1 trillion in AI-related debt will be issued globally by 2030. Data center companies and other entities involved in the AI boom are racing to expand their capacity to meet what industry experts widely consider an insatiable demand for AI services.

Borrowers returning to the market now face a 10-year Treasury yield hovering near 5.17%, approximately a one percentage point increase since the start of the year. This necessitates that companies issuing debt offer more attractive returns to entice investors.

While the market is not yet in a state of panic, the impact is visible. CoreWeave, a company known for its significant debt, has seen its stock hold steady. In contrast, Oracle, which has utilized the debt market for its AI expansion, has experienced a more challenging period, with its stock declining by approximately 30% this year.

SoftBank, a key financier of AI projects, successfully raised $11.1 billion this week through a junk bond sale. The seven-year tranche of this sale offered yields as high as 9.75%, indicating a strong willingness among companies to pay higher interest rates to secure necessary funding.