OpenAI Partners Take On $96 Billion in Debt for AI Infrastructure

TLDR

• OpenAI’s partners including SoftBank, Oracle, and CoreWeave have taken on $96 billion in debt to fund AI infrastructure and data centers needed for OpenAI’s operations.
• OpenAI has made $1.4 trillion in commitments for energy and computing power but expects only $20 billion in revenue this year, creating a large funding gap.
• The big five tech companies Amazon, Google, Meta, Microsoft, and Oracle issued $121 billion in new debt this year for AI operations, four times their average debt over the previous five years.
• CoreWeave reported $14 billion in current and non-current debt plus $39.1 billion in future lease agreements but expects only $5 billion in revenue this year.
• The surge in tech debt is affecting credit markets with credit default swap spreads widening for companies like Oracle and CoreWeave, signaling increased default risk concerns.

Companies providing data centers, chips, and computing power to OpenAI have borrowed approximately $96 billion to support their operations. The Financial Times analysis reveals the AI sector’s growing dependence on debt financing and its reliance on the loss-making AI startup.

The revenue generated by AI companies and data center operators currently falls far short of covering their expansion costs. OpenAI has committed to $1.4 trillion in future energy and computing power procurement. However, the company expects to generate only $20 billion in revenue this year.

HSBC analysis suggests that even if OpenAI reaches $200 billion in annual revenue by 2030, it will still require an additional $207 billion in funding to continue operations. This creates a major financial challenge for the company and its partners.

The $96 billion debt breakdown shows SoftBank, Oracle, and CoreWeave already borrowed $30 billion. Blue Owl Capital and Crusoe took $28 billion in loans. Another $38 billion remains under discussion with Oracle, Vantage, and their banks.

Shift in AI Funding Strategy

Before 2024, big tech companies funded AI development using cash from their balance sheets. Microsoft, Alphabet, Amazon, and Meta led this direct investment approach. The shift to debt financing represents a new phase in AI infrastructure development.

CoreWeave’s financial position draws particular attention from investors. The company reported $3.7 billion in current debt and $10.3 billion in non-current debt. It also holds $39.1 billion in future lease agreements for data centers. The company projects only $5 billion in revenue for this year.

Tech Giants Join Borrowing Spree

The five largest tech companies Amazon, Google, Meta, Microsoft, and Oracle issued $121 billion in new debt this year for AI operations. Bank of America data shows this exceeds four times their average debt issuance of $28 billion over the previous five years.

The surge in corporate debt issuance is affecting credit markets. Bank of America analysts Yuri Seliger and Sohyun Marie Lee tracked about $50 billion in investment-grade debt for the week before Thanksgiving. Over four weeks, issuance reached $220 billion, roughly 70% higher than typical volumes for this period.

Hyperscaler companies added $63 billion to the debt market this year. Analysts attribute the entire increase in debt supply to merger and acquisition deals and hyperscaler activity.

Credit Risk Signals Emerge

The increased debt supply is moving credit default swap spreads in the market. Credit default swaps function as insurance policies on corporate debt, paying holders if creditors default. Rising yields indicate markets perceive higher default risk.

Oracle’s five-year credit default swap widened by about 60 basis points to 104 basis points since late September. CoreWeave’s spread increased roughly 280 basis points to around 640 basis points since September, according to Deutsche Bank analyst Jim Reid.

Reid noted this marks a new phase of the AI boom where investors increasingly seek to hedge their risk. Public credit markets now fund growing capital expenditure needs beyond just hyperscaler free cash flow.

The post OpenAI Partners Take On $96 Billion in Debt for AI Infrastructure appeared first on Blockonomi.