They’re worried about the capex. And the attendant debt binge. But not so worried that they’d sell stocks or raise cash. The opposite, in fact.
“They” are the 200 capital allocators who participated in BofA’s fund manager survey this month.
Released on Tuesday, the August vintage was among the most bullish ever, with self-reported cash levels falling to the sixth-lowest on record and equity allocations rising to the highest since 2021’s go-go days.
Upbeat as they are, this month’s panelists — who between them manage about half what Elon Musk’s worth on a poor day — expressed more than a little concern about the $250 billion the hyper-scalers borrowed globally over the last 12 months to fund AI investments.
There’s that chart again. I like it. Because it’s provocative, assuming you can wrap your mind around numbers as large as those associated with Jensen Huang’s “new industrial revolution.” Between them, the five hyper-scalers are set to spend $2.3 trillion over the next two years, and that’s on top of more than $800 billion this year.
Those estimates exceed operating cash flow forecasts, which means the big spenders couldn’t fund this with FCF even if they wanted to plow every last dime into capex. So, they’re borrowing and raising equity.
That borrowing is seen by fund managers as the most likely source of a prospective systemic credit event, even as private credit clawed back some of the vote this month. The figure on the left, below, shows you the breakdown.
Nearly four in 10 panelists in BofA’s poll said hyper-scaler spending poses the biggest risk of a credit crisis. And yet, as the figure on the right shows, very few expect those companies to cut capex.
“71% of FMS investors do not expect one of the AI hyper-scalers to announce a capex cut this year, up from 61% in July,” Michael Hartnett wrote, in the editorial accompanying the August survey.
The figure below’s worth highlighting as well. It shows the net share of survey panelists who think corporate balance sheets are over-leveraged.
At 19%, that metric’s the highest since March of 2023, during the SVB meltdown and associated melodrama.
Needless to say, the uptick’s entirely attributable to borrowing related to AI data center buildouts.
When asked what companies should do with free cash, just 22% said increase capex. That share’s been suppressed at very low levels since the Fed started raising rates in 2022.
They are all playing a big game of “chicken” now with everyone else’s money: each company racing towards the cliff’s edge, all hoping to be the last to bail-out. I suspect that at some point one of the AI hyper-scalers is going to have to tap-out, or risk rolling over just like Oracle did. (My money is on Meta.) What happens after that is anyone’s guess. Does Apple or Berkshire Hathaway swoop in to buy their AI division for just pennies on the dollar? Do shares of the other hyper-scalers go up or down? Does the tide roll out only to reveal that everyone has been swimming naked? Does the market finally face plant in spectacular fashion? I can hardly wait to find out. Until then I will make some popcorn and stay tuned to this channel.
Agreed. My money is on meta too.
Facing down a $1 trillion lawsuit in CA can’t help.
Hear, hear. You get it, sir.
Whether or not this is a “good investment” for the hyperscalers, it represents a huge economic stimulus package. Roughly 1/4 of what the US spent on WWII (in today’s dollars). That was enough money to get us out of the Great Depression.
so total borrowing in 2026 is about $300B, I think. With $800B to capex. next year forecasts or commitments are $1T. so they may need to borrow $500B on top of this years debt issuance. And in some cases the chips, which depreciation rapidly over a couple of years is being used as collateral.
Ive always wondered if/when big tech would become dividend payers and just pay out a ton of their cash flow…instead they are now going to do that via debt, not dividends. when this cools off or blows up, those long bonds might pay well over the current 6%+ for 2040 maturies. I didnt buy goog ‘low’ to fund retirement, but might get a second swipe buying thier debt and getting 8-9% yld, maybe even get a change to buy under $100share for a kicker.