Musk says 200+ AI compute clouds will “die off in batches, like guppies.” Even investment-grade $SPCX (SpaceX) is borrowing at rates close to junk-bond levels
【What Musk said】Beijing time, Oct. 26, 03:11
- Over the past few weeks, the bond market has practically shut its doors to companies whose revenue comes almost entirely from AI data centers
- SpaceX just borrowed $40 billion to buy GPUs, relying on its investment-grade rating and revenue from Starlink and launches
- More than 200 emerging compute clouds will die off in batches and be consolidated; few will make it through
【How expensive is the borrowing?】
- All three agencies rate SpaceX investment-grade: S&P BBB, Moody’s Baa1, Fitch BBB+
- The older bonds issued in June have a weighted average coupon of 5.855%
- For this new debt, the estimated rates reported by Semafor on Oct. 22 were about 7.75% for the tranche secured by chips and about 8.3% for the lowest-rated tranche
- On the same day, the U.S. bond market’s averages were: 5.79% for investment grade, 6.01% for BBB-rated bonds, and 8.14% for “junk bonds”
- An investment-grade company is now paying rates close to junk-bond levels to borrow for AI
【Does this mean the AI bubble is about to burst?】
- One way it looks like it: money is getting more expensive and lenders are getting pickier. CoreWeave, which has no other revenue, had an unsecured-bond yield of about 15% in mid-October
- One way it doesn’t: the money hasn’t dried up. SpaceX got its loan, and OpenAI is still negotiating a $30 billion financing deal at a $1.25 trillion valuation
- Remember, Musk is a player in this industry: xAI is competing with these compute clouds for GPUs, power, and funding, so their collapse would benefit SpaceX
- The more likely scenario is that companies without revenue get cleared out first, while money concentrates in big players with cash flow
Do you think this is the beginning of the bubble bursting, or a shakeout where the big fish eat the little fish?
【What Musk said】Beijing time, Oct. 26, 03:11
- Over the past few weeks, the bond market has practically shut its doors to companies whose revenue comes almost entirely from AI data centers
- SpaceX just borrowed $40 billion to buy GPUs, relying on its investment-grade rating and revenue from Starlink and launches
- More than 200 emerging compute clouds will die off in batches and be consolidated; few will make it through
【How expensive is the borrowing?】
- All three agencies rate SpaceX investment-grade: S&P BBB, Moody’s Baa1, Fitch BBB+
- The older bonds issued in June have a weighted average coupon of 5.855%
- For this new debt, the estimated rates reported by Semafor on Oct. 22 were about 7.75% for the tranche secured by chips and about 8.3% for the lowest-rated tranche
- On the same day, the U.S. bond market’s averages were: 5.79% for investment grade, 6.01% for BBB-rated bonds, and 8.14% for “junk bonds”
- An investment-grade company is now paying rates close to junk-bond levels to borrow for AI
【Does this mean the AI bubble is about to burst?】
- One way it looks like it: money is getting more expensive and lenders are getting pickier. CoreWeave, which has no other revenue, had an unsecured-bond yield of about 15% in mid-October
- One way it doesn’t: the money hasn’t dried up. SpaceX got its loan, and OpenAI is still negotiating a $30 billion financing deal at a $1.25 trillion valuation
- Remember, Musk is a player in this industry: xAI is competing with these compute clouds for GPUs, power, and funding, so their collapse would benefit SpaceX
- The more likely scenario is that companies without revenue get cleared out first, while money concentrates in big players with cash flow
Do you think this is the beginning of the bubble bursting, or a shakeout where the big fish eat the little fish?
