SpaceX posted results that far exceeded market expectations, but its bonds weakened as the company's aggressive artificial intelligence investment plans raised concerns that borrowing could increase further.
SpaceX's credit derivatives spreads have widened gradually this week, Bloomberg reported on the 21st. As of noon U.S. Eastern time, the spread on the company's 6.6% bonds maturing in 2046 widened 0.09 percentage point to 2.64 percentage points.
The earnings were strong. Third-quarter net profit at the company, valued at $2 trillion, came in at $4.4 billion, far above the market forecast of $1.88 billion. Revenue rose 161% from a year earlier, also beating expectations. The shares gained as much as 12.44% at one point the previous day.
The problem was the large-scale spending plan announced alongside the results. Chief Financial Officer Bret Johnsen said on a conference call that the company is investing aggressively in the three areas it sees as offering the highest long-term returns. Those include computing for its superintelligence unit and the Starlink broadband and mobile businesses. He stressed that the company plans to maintain its investment-grade credit rating.
Even so, the CFO's remarks on aggressive investment stoked market caution that debt could rise sharply. The company raised $25 billion in the bond market through a multi-tranche offering in June. It is also in talks with banks and other investors to raise $40 billion to fund purchases of Nvidia chips. On the conference call, Johnsen said there are multiple pools of borrowed capital currently under discussion to fund this remarkable growth.
The price of five-year credit default swaps on the company's bonds rose 0.8 basis point to about 232.6 basis points, according to ICE Data Services, reversing an earlier narrowing trend. The price has climbed for most of October, setting record highs several times this month.
Credit risk indicators for major big technology companies also hit new highs this week, as investors braced for a renewed wave of borrowing after earnings season in a bond market already facing heavy supply. Companies worldwide have borrowed more than $450 billion this year to fund AI, according to data compiled by Bloomberg, compared with close to $200 billion for all of last year.
