How Could Upcoming IPOs Shape the AI Sector?
Sean Handrahan, Sector Head, Technology
Does SpaceX really deserve an Investment Grade Credit Rating?
Sam Acton, CFA, Portfolio Manager, Co-Head Fixed Income
Obviously, the SpaceX (SPCX) IPO got a lot of attention, but a couple of weeks later the company made a splash in the debt markets with their inaugural bond deal. We’ve gotten the question from clients about whether this business really deserves the investment grade credit ratings it received, and I think it also brings up some broader questions around all this AI-related debt financing that we’ve seen.
On SPCX – from a credit perspective I’d say the strongest attribute is the USD $2 trillion equity market cap that sits underneath the debt. Looking at the business, the Launch and Connectivity segments are actually good businesses. While these segments are expected to be free cash flow negative over the next several years, they are expected to grow and achieve meaningful scale which should position them to be long term cash flow generators.
The AI business is the most challenging from a credit perspective, with massively negative cash flows and a much more uncertain path to monetization and profitability. Layer in some governance question marks and some serious key-person risk and I think it’s fair to say this company does not look like your typical investment grade credit.
The bond market is potentially pricing in some of these concerns, with the 10yr and 30yr bonds already trading wider on spread by 20-25 bps since the deal, and now meaningfully wider than the BBB index.
We have seen a similar pattern with some of the other recent large AI-related bond deals. Nvidia 30yr bonds and Amazon 30yr bonds are wider by 8-10 bps over the same period. I think the market is figuring out that this surge of new issue supply is maybe just getting started. With over USD $200 billion of AI-related debt issuance so far in 2026, and the pace of issuance expected to increase into 2027, the market may be forced to absorb a lot more issuance.
Perhaps when OpenAI and Anthropic go public the rating agencies might give them investment grade ratings as well and they can add to the new issue supply.
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