The change in the AI industry that warrants the most concern may already be showing up in the financing market.
On November 12, Reuters disclosed a set of noteworthy figures.
Through the end of October this year, U.S. convertible bond issuance reached $153.6 billion, about 70% of which was related to AI.
But as AI tech stocks have recently undergone a sharp correction, the terms companies are getting for issuing new debt have begun to worsen.
For example, in Dropbox’s latest convertible bond financing, which was valued at less than $11 billion, the actual amount issued was $1.1 billion, with a conversion premium of about 25%—well below the third-quarter average of 35%.
Akamai’s new bonds also carry an interest rate of 1%, higher than the recent average of about 0.75%.
Behind these figures is the capital market’s growing reassessment of the financing risks facing AI companies.
In the past, investors were willing to believe that as long as demand for AI continued to grow, companies could keep raising funds and expanding their data centers.
But now, some companies have to pay more to secure the same amount of capital.
For AI companies that need to keep investing huge sums of capital but cannot generate sufficient free cash flow in the short term, this may be more troublesome than falling share prices.
If financing conditions continue to deteriorate, more AI infrastructure projects may be forced to slow their expansion in the future.
$NVDA $SNDK $SPCX
On November 12, Reuters disclosed a set of noteworthy figures.
Through the end of October this year, U.S. convertible bond issuance reached $153.6 billion, about 70% of which was related to AI.
But as AI tech stocks have recently undergone a sharp correction, the terms companies are getting for issuing new debt have begun to worsen.
For example, in Dropbox’s latest convertible bond financing, which was valued at less than $11 billion, the actual amount issued was $1.1 billion, with a conversion premium of about 25%—well below the third-quarter average of 35%.
Akamai’s new bonds also carry an interest rate of 1%, higher than the recent average of about 0.75%.
Behind these figures is the capital market’s growing reassessment of the financing risks facing AI companies.
In the past, investors were willing to believe that as long as demand for AI continued to grow, companies could keep raising funds and expanding their data centers.
But now, some companies have to pay more to secure the same amount of capital.
For AI companies that need to keep investing huge sums of capital but cannot generate sufficient free cash flow in the short term, this may be more troublesome than falling share prices.
If financing conditions continue to deteriorate, more AI infrastructure projects may be forced to slow their expansion in the future.
$NVDA $SNDK $SPCX
