By Tatiana Bautzer and Saeed Azhar
NEW YORK, Dec 3 (Reuters) – Investments by big technology companies in artificial intelligence and increased merger and acquisition activity will increase the volume of debt issuance by investment-grade companies next year, banking executives said on Wednesday during a panel at the Reuters NEXT conference in New York.
The financing needs of the top five US technology companies could reach almost $100 billion by 2026, said Meghan Graper, global head of debt capital markets at Barclays.
Big tech companies are aggressively tapping debt markets in their race to build AI-ready data centers, a shift for Silicon Valley companies that typically relied on cash to finance their investments.
Since September, public bond issuance by four major cloud computing and artificial intelligence platform companies known as “hyperscalers” has reached nearly $90 billion.
BACKGROUND OF M&A TRANSACTIONS
The large backlog of M&A transactions that may require financing will also be an important factor in increasing issuance volume. Currently, there are $175 billion in announced M&A transactions between investment-grade corporations, more than double the $75 billion a year ago.
Anish Shah, global head of debt capital markets at Morgan Stanley, expects more activity from private equity firms or their sponsors. “The big catalyst is that sponsors are much more confident in bringing assets to market if they know they can execute a credible dual track and that the IPO is actually a viable alternative. Our IPO sponsor pipeline is at an all-time high post-COVID,” he said.
Shah is also optimistic about a higher volume of large corporate M&A deals next year.
Executives said investors are not worried about the potential for circular financing among big tech and artificial intelligence companies, such as OpenAI. “If you look at what we finance, the credit backs the assets that exist; they’re somewhere in the middle of the desert,” said Marc Baigneres, global co-head of investment-grade finance at JPMorgan Chase, referring to data centers.
Shah said companies that issue debt have highly diversified cash flow. “Their investments individually represent very small components of their overall businesses. I don’t think there is systemic risk,” he added.
(Reporting by Saeed ‌Azhar and Tatiana BautzerEditing by Rod Nickel)