Electrical wiring cables at a data center.
U.S. corporate debt linked to data-center firms fell Tuesday as fears that the artificial intelligence (AI) borrowing boom won't pay off were reignited by a report that OpenAI missed internal user and sales targets.
Oracle Corp. securities have been a bellwether for investor sentiment on data centers, and its investment-grade bonds widened across the curve while a key measure of its credit risk rose sharply. Notes from SoftBank Group Corp., which is seeking a $10 billion loan backed by OpenAI shares, and cloud infrastructure firm CoreWeave Inc. were among the biggest decliners in the high-yield market.
The Wall Street Journal reported that OpenAI recently failed to meet its own goals for new user acquisition and sales, fueling internal concerns that the company may struggle to support its capital spending on AI infrastructure. The miss will impact that entire ecosystem, Bloomberg Intelligence said in a note, with Oracle "the most exposed in terms of risk to its financial goals."
"When OpenAI misses numbers, the market immediately questions AI capex payback and quickly marks the whole complex wider," said Mark Clegg, a senior fixed-income trader at Allspring Global Investments.
OpenAI pushed back against the concerns yesterday, saying its consumer and enterprise businesses are "firing on all cylinders."
The cost of protecting Oracle debt against default for five years rose as much as 0.07 percentage point, to around 1.77 percentage points a year, the highest intraday level since April 7, according to ICE Data Services. The newly issued $14 billion note tied to a giant Oracle data center in Michigan that will allow the tech giant to power applications for OpenAI widened marginally on Tuesday.
This month has seen a rush of offerings related to data centers, notably in the junk-bond market, as firms borrow amid a surge of spending on AI projects. On Monday, Hut 8 Corp. sold $3.25 billion of investment-grade bonds to fund construction of a facility tied to Alphabet Inc.'s Google.
CoreWeave—which tapped the junk-bond market twice this month—saw a note due in 2031 fall to a record low of 98.63 cents on the dollar, according to Trace data. The original issuance price was at face value, with a follow-on deal fetching 102 cents. A five-year bond from Edged Compute LLC, which priced at par a week ago, dropped over a cent Tuesday to a new low of 97.25 cents.
For some, the selloff is overdone. The Journal's story doesn't change that OpenAI remains one of the core demand drivers behind the AI buildout, according to John Lloyd, global head of multisector credit and a portfolio manager at Janus Henderson Investors. "With over $125 billion of venture capital raised and clear IPO [initial public offering] ambitions, OpenAI continues to underpin long‑term growth for hyperscalers and neoclouds, even if some near‑term headlines introduce volatility," Lloyd added.
Yesterday, a Nevada data center project tied to Nvidia Corp. raised $4.59 billion from a junk-bond sale. An entity backed by asset manager Tract Capital Management LP and Fleet Data Centers I LP sold the five-year notes at 99 cents on the dollar to yield 6.74 percent, according to a person with direct knowledge of the matter. That's the second time the developers have raised funds for the project—a 200-megawatt data center and substation in Storey County, Nevada, expected to be leased to Nvidia. In February, it priced $3.8 billion in junk bonds at a 5.9 percent yield.
Next, money manages will be poring over a slew of earning reports from so-called "hyperscalers" Alphabet, Amazon.com Inc., Meta Platforms Inc., and Microsoft Corp. to gain more clarity on how the AI infrastructure boom is progressing.
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