Citadel Securities Sees a $500 Billion Chip Financing Debt Binge
(Bloomberg) -- The credit markets may have had their fill of record borrowing for data centers, but tech companies aren’t done yet. Citadel Securities LLC
(Bloomberg) -- The credit markets may have had their fill of record borrowing for data centers, but tech companies aren’t done yet. Citadel Securities LLC is forecasting another $500 billion-plus of debt in the public and private markets by 2028 to bankroll the chips that go inside the artificial intelligence campuses. For context, that amount would be equal to more than 5% of the Bloomberg US high-grade index by 2028, says Jeff Eason, head investment-grade desk analyst at the firm. He expects most of that issuance will likely be shorter-dated — around three to five year — to match the life-span of the chips, and a portion could be issued as 144A private offerings. Eason noted this forecast could prove conservative.
“This has the potential to become one of the largest new sectors in investment-grade credit,” said Eason in an interview. “The scale is unprecedented relative to today’s market.” Global markets have absorbed roughly $570 billion of AI-related debt, much of it issued from the so-called hyperscalers — companies like Amazon.com Inc., Microsoft Corp. and Alphabet Inc.’s Google that are building data centers at an unprecedented scale. Since last year, the US market has digested roughly $60 billion of short-term debt with durations as long as five years from the hyperscalers. That amount would be a fraction of the $250 billion-plus that Eason estimates will be issued by chip-makers in 2028 alone. “Investors have not yet absorbed financing of this magnitude,” he said.
Leading AI labs like Anthropic PBC and OpenAI are burning cash to grow their businesses and are increasingly relying on all kinds of debt structures and backstops from big firms to access the investment-grade market, one of the deepest and most liquid arenas for corporate-borrowing. Earlier this year, Anthropic clinched a roughly $35 billion financing package to purchase Google’s custom TPU chips in one of the biggest private credit transactions in history. Broadcom backstopped payments on the largest senior portions of that debt, which allowed Wall Street banks to trade portions of the tranche. Click here for Bloomberg News’ AI Debt Tracker Citadel launched high-grade credit in early 2024 and traded approximately $500 billion notional last year, according to Sam Berberian, global head of credit trading at the firm.
Eason and his team — including investment-grade desk analyst Tucker Roberts — said the influx of supply could potentially reshape investment-grade credit portfolios. Investors will probably have to trim their exposure in the technology, media and telecommunications sector to create capacity for the chip-financing debt. “The result is more than a funding story,” said Eason. “It could fundamentally change the composition of the investment-grade market, creating a new benchmark sector while influencing spreads, portfolio construction and capital allocation across the broader AI ecosystem.” More stories like this are available on bloomberg.com
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