Amid the growing angst about hyperscaler CapEx (and more specifically, the historic flood of new debt issuance to fund it), attention among the always-bullish equity talking-heads has shifted - and rightfully so - to the bond markets as alarm signals flare up with an increasing frequency. Of course, for ZeroHedge readers, this is not a new topic, it is something we have been warning of for the past year, ever since we explained that debt was the true AI bubble last October:

Then, last week we explained why - as Nomura's Charlie McElligott also joined the credit chorus - the unprecedented flood of AI corporate debt had started to crowd out demand for US government paper, an ominous development as it meant continued massive capex would lead to even higher treasury yields... as well as even more inflation, a toxic mix to the Treasury.

What's worse, the market had finally started to pay attention, as one look at the surge in treasury swaption vol of vol made abundantly clear, which is why last week we warned - correctly - that Bessent was about to get very busy as bearish bets hit levels last seen during previous trasury market crises. 

One week later Bessent did in fact, get busy, and shocked the market with a "cringingly executed" (to quote McElligott) buyback directive announcement, one which lasted all of 23 hours before the entire move was reversed and yields are now trading 4 bps higher than where they were before the Treasury announcement. 

But while Bessent can address the market again any time he wants and threaten Treasury shorts (“By At LeAsT dOuBlE”), the bigger problem facing the Treasury is that the deluge of AI debt is really just starting - recall there is another $6-8 trillion in capex that has to be spent by 2030, most of it in the form of corporate debt, which will lead to relentless pressure higher on US interest rate for the foreseeable future. 

Some AI companies realize that it is only a matter of time before Bessent chills this AI debt diarrhea indefinitely; which explains why Bloomberg reported today that Broadcom is preparing another gargantuan SPV deal, and is in talks with a group of lenders to raise more than $60 billion in debt for an AI chip financing deal that will benefit Anthropic PBC and other companies. 

The financing, which is still being ironed out, may also include a roughly $30 billion junior debt tranche, said some of the people, who asked not to be identified because the information is private.

Under the proposed plan, Broadcom would guarantee a portion of the senior-secured tranche, which could range from about $60 billion to $70 billion. The numbers under discussion would potentially bring the total to as much as $100 billion, which would make it the largest SPV deal ever funded.

The agreement would add to a rush of deals aimed at financing artificial intelligence infrastructure. AI companies like Anthropic are taking a bigger role in the build-out, aiming to ensure they have enough computing capacity. Broadcom, meanwhile, is looking to sell more chips and other data center equipment, challenging Nvidia in this lucrative market.

Since AI infrastructure SPV require private credit backers, Blackstone and Apollo - the same firms that backstopped Nvidia's recent $500 billion compute collateralized deal - are in talks with Broadcom to participate in the chip financing, following a partnership the three companies struck in June to help finance computing infrastructure. The debt - as one would expect ever since Meta set the standard with its Beignet off-balance sheet deal - would be issued by a special-purpose vehicle, or SPV, most of which won't appear on any balance sheet.

The potential deal would help firms including Anthropic access chips and other key AI infrastructure, according to Bloomberg which broke the news. It could be similar to the $35 billion debt agreement that kicked off the group’s AI XPV partnership, they said. 

In the first deal for the AI XPV platform two months ago, we explained that Broadcom backstopped most of the debt and investors including Apollo and Blackstone financed the purchase of custom AI chips to lease to Anthropic. And in a sleight of brilliant financial engineering where everyone pretends there is no actual debt being issued, this enabled the senior debt tranches to win investment-grade ratings at lower borrowing costs. 

However, that is just the start... of both the debt issuance runway and Bessent's headaches. The partnership, which plans to finance more than 20 gigawatts of computing power, will require hundreds of billions of dollars. That level of capacity would roughly equal the output of 20 nuclear plants. 

The unprecedented scale of the borrowing now under discussion underscores the capital requirements of the AI boom, which has prompted a slew of novel debt deals at a pace and scale that’s simultaneously unnerved some investors. In what was actually a huge nothingburger, Nvidia earlier this month announced that a coalition of major financial firms including BlackRock and Goldman Sachs Group were lining up more than $500 billion to help fund the AI build-out, although the agreement was only an MOU and was at best intended to provide some comfort to credit markets. It failed, since Nvidia CDS is now trading at all time wides. 

Broadcom’s chief executive officer said in March that the company expects AI chip sales to top $100 billion next year. The chipmaker has also struck other partnerships, including an accord with Apple that’s expected to be worth more than $30 billion. Broadcom’s valuation has soared in recent years, propelled by agreements to make custom AI chips for firms like OpenAI.

After briefly declining, Broadcom shares rose as much as 1.1% in late trading after Bloomberg News reported on the discussions. The stock had climbed 5.2% this year through the close. But forget about the stock: these days all the action is in the bond trading and/or Credit Default Swap land, and is why Broadcom’s massive new bond deal illustrates the US Treasury’s uphill task in containing long-bond yields

Broadcom’s debt is interesting because its recent competition for Google’s TPU business has been accompanied by a spike in CDS. And, as Bloomberg notes, the monster debt deal will do little to alleviate that pressure and will likely feed down to the CDS of other chip/hyperscaler credit.

As we noted in our EOD wrap, hyperscaler CDS is already back near the July all-time wides, with names that issue new debt seeing clear spikes in CDS pushing their default risk slowly but surely every higher. 

The problem is that unlike equities, where there apparently is an infinite number of greater fools using other people's money to force daily gamma squeezes, there will come a time - and yield - when the bond market simply refuses to keep funding these endless AI boondoggles, especially when China can now do pretty much everything faster, cheaper and almost as effectively. At that point, the AI bubble will finally burst.