Technology firms are capitalising on falling borrowing costs as the Fed cuts interest rates and investors race to lock in still-elevated yields
[NEW YORK] Meta Platforms sold US$30 billion of corporate bonds on Thursday (Oct 30), the biggest such offering of the year, after the company received record orders for the debt.
The bond sale comes a day after chief executive officer Mark Zuckerberg warned that the company would spend even more aggressively on artificial intelligence (AI) in the coming year. Morgan Stanley expects big tech companies known as hyperscalers to spend about US$3 trillion on infrastructure such as data centres between now and the end of 2028, with roughly half of that likely financed through the corporations’ cash flows.
Thursday’s bond sale is the biggest high-grade note offering since 2023, when Pfizer sold US$31 billion of debt. Investors placed US$125 billion of orders for Meta’s bonds at the peak, surpassing the prior record from 2018, when a CVS Health Corp. note sale got US$120 billion of orders. That offering was for US$40 billion of securities.
There’s a lot more debt coming from tech companies. Credit markets will play a big role as an alternative source of funding for AI investment, according to Andrew Sheets, global head of corporate credit research at Morgan Stanley.
“Most of this AI-related CapEx is still ahead of us,” Sheets said on Thursday. “It’s only just starting to ramp up, so this theme will be with us for a while.”
Technology firms are capitalising on falling borrowing costs as the US Federal Reserve cuts interest rates and investors race to lock in still-elevated yields. Meta is infusing AI services into its key products, including Facebook and Instagram. The company said on Wednesday that it expects to spend as much as US$72 billion on capital expenditure this year, and that its capital spending will grow considerably faster in 2026 than it will this year.
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Meta’s shares fell 11 per cent on Thursday to close at US$668.16. A spokesperson declined to comment.
Other blockbuster debt deals from the tech sector include Oracle’s US$18 billion high-grade offering last month. Banks are also preparing to launch a US$38 billion debt offering that will help fund data centres tied to Oracle in what would be the largest such deal for AI to come to market, Bloomberg reported last week. The US$27 billion private bond sale earlier this month was for a Meta project in Louisiana that will be 80 per cent owned by Blue Owl Capital Inc.
“Spreads are historically tight, so it isn’t a terrible time from their perspective to borrow,” said Scott Kimball, chief investment officer at Loop Capital Asset Management. “Investors need to look past the large amounts of cash and high equity cushions and focus on the ones who will prove the most successful.”
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Spending aggressively
In the US high-grade market, Meta sold notes in six parts, ranging from five to 40 years in length, according to a source familiar with the matter who asked not to be identified as they are not authorised to speak publicly. The US$4.5 billion, 40-year portion yields 1.1 percentage points more than benchmark Treasuries, after initial talk of about 1.4 percentage points, the source said.
The company last sold unsecured corporate notes in the US in August 2024. Portions of that offering were among the most actively traded notes in the US market on Thursday, according to Trace, as investors cleared out space for the new securities.
Meta is competing with top tech rivals, including Alphabet and Microsoft, that are ploughing vast sums of money into AI research. AI technology could boost productivity for workers in areas including law, accounting, and economics, and in a worst-case scenario, put many white-collar workers out of jobs.
Zuckerberg and Meta chief financial officer Susan Li spent much of their earnings call on Wednesday working to convince analysts that Meta’s AI investments are paying off now – and will in the future – by helping the company better target ads and content. Revenue rose 26 per cent to US$51.2 billion in the third quarter, signalling that Meta’s core advertising business, which generates about 98 per cent of that revenue, remains strong.
“We want to make sure we are not under-investing,” said Zuckerberg on the call after posting third-quarter results.
Zuckerberg said that even if Meta develops too much computing power, the excess capacity could improve the core business. The company could also find a way to sell it, he said, the way rivals Microsoft and Google already do.
“I think that it’s the right strategy to aggressively front-load building capacity,” Zuckerberg said.
Meta led a seven-borrower docket on Thursday that included Yankee banks HSBC Holdings and NatWest Markets. Citigroup and Morgan Stanley managed Meta’s bond sale. Citi and Morgan Stanley declined to comment. BLOOMBERG
