Is more AI supply coming?

Investing.com -- Bank of America analyst Yuri Seliger told investors in a note this week that the surge in borrowing to fund AI data center projects in recent weeks suggests more AI supply is coming.

The analyst noted that borrowing to finance AI infrastructure “exploded in September and so far in October.”

According to BofA, “IG bond market supply from Meta ($30 billion), Oracle ($18 billion) and RPLDCI ($27 billion) totaled $75 billion,” excluding “the $38 billion loan tied to Oracle / Vantage data centers that’s being put together by banks.”

Seliger stated that this represents “a dramatic jump from the $37 billion average annual pace of supply prior to Covid.”

“The answer is ‘probably yes,’” Seliger wrote, referring to whether more AI-related debt issuance is likely.

He explained that the absence of AI funding in the investment-grade bond market before September reflected “the strong cash flow generation by the big tech firms (Amazon, Google, Meta, Microsoft, Oracle).”

However, BofA believes Meta’s recently announced spending increase “suggests the companies collectively may be reaching a limit on how much AI capex they are willing to fund purely from cash flows.”

Consensus estimates, the bank said, show “AI capex reaching 94% of operating cash flow less spending on dividends and share buybacks in 2025 and in 2026, up from 76% in 2024.”

While a ratio below 100% “means technically the firms don’t need to issue debt to fund the spending,” BofA said, “it’s getting close.” The analyst added that eliminating share buybacks could “take the ratio all the way down to low 70s,” noting that “equity could be an attractive alternative given the elevated stock multiples.”

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