Markets weigh tech equity surge as credit premiums rise

Tech equity sales are accelerating in the US, and credit investors are treating the surge as a signal that big spending—and potentially more borrowing—may be ahead.

In June, Alphabet Inc. raised about $85 billion through a share sale, while SpaceX completed a record-setting initial public offering valued at roughly $75 billion, according to figures cited by market participants. The fundraising pace is drawing comparisons to earlier tech cycles, even as today’s firms often generate substantial cash flow.

Equity raises can help creditors, but may flag bigger plans

On paper, more equity typically improves a company’s financial flexibility by increasing the capital cushion that sits beneath bondholders in a downturn. That can strengthen balance sheets and, in isolation, should be supportive for credit.

Bond traders, however, are focusing on why cash-rich companies would move quickly to sell stock. One interpretation is that management teams are preparing for higher capital expenditure—particularly tied to artificial intelligence infrastructure—and may ultimately lean more on debt markets than investors previously assumed.

Tom Murphy, head of investment grade credit at Columbia Threadneedle, said the equity issuance is a clue that capital expenditure is likely to rise. For bondholders, the concern is not the equity itself, but the possibility that issuance precedes an expansion in investment and funding needs.

SpaceX bond performance surprises after debut

That tension showed up quickly in trading around SpaceX’s new debt. After the company’s bonds began trading on Wednesday, prices weakened faster than some investors expected.

By Friday afternoon, paper losses on the $25 billion offering were about $360 million when measured against Treasuries, according to market estimates referenced by traders. The deal drew attention because SpaceX secured an investment-grade rating despite expectations that cash flow could remain negative for years.

Weak secondary performance can influence how investors price risk in subsequent tech offerings, especially when large deals set benchmarks for the sector. It also underscores that strong demand at issuance does not guarantee stable performance once bonds are in the market.

Alphabet move coincides with broader spread widening

Alphabet’s debt also softened versus Treasuries after the company disclosed its stock sale. Some participants attributed that reaction to worries that the Google parent’s funding move could be linked to elevated spending requirements.

The shift is occurring alongside a broader repricing in high-grade tech credit. Risk premiums on US investment-grade tech bonds rose to about 0.79 percentage point as of Thursday, up from 0.74 percentage point at the end of May, according to market levels cited in recent trading.

A widening in spreads does not necessarily signal distress, but it does reflect a higher compensation demanded by investors for holding the sector’s debt. For issuers, it can translate into a higher cost of borrowing if they return to the market for new financing.

More equity issuance is also expected. OpenAI has been weighing an initial public offering as soon as next year, following rival Anthropic PBC, while Meta Platforms Inc. has been considering raising equity, according to reports cited by investors.

The next test for bondholders will be whether equity proceeds are used to reinforce balance sheets or to enable aggressive investment programs that lift leverage over time. Traders will also watch whether additional supply in both stock and debt markets changes demand, pricing, and rating-agency assumptions for large technology borrowers.