Meta pays the price for "burning cash" on AI: $12.5 billion in new debt sees sharply rising interest rates, Wall Street starts to feel "indigestion."

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The cost of financing for artificial intelligence infrastructure is rising as tech giants compete.

Meta-backed Texas data center project completed a $12.55 billion bond issuance this week, but its yield is about 50 basis points higher than similar deals last year, reaching about 7.5%. As the market's capacity to absorb AI-related debt approaches its limits, investors are demanding a higher risk premium, and the capital pressure behind the AI infrastructure boom is starting to emerge.

Meta executives have told bankers and fund managers that the company may need to raise hundreds of billions of dollars in the future to support AI infrastructure construction, and is discussing further financing plans with institutions such as Blackstone. According to The Wall Street Journal, Nvidia is also in talks with OpenAI, intending to provide a guarantee of around $250 billion to help finance a large data center project in Ohio.

Global research from Bank of America shows that the scale of new AI-related corporate bond issuance reached $270 billion by early July this year, nearly twice the total financing amount for 2025. As tech giants continue to ramp up AI capital expenditures, the market is shifting from “whether to provide funding” to “how high the returns need to be for funding to enter.”

Rising Interest Rates, Pressure on Pricing of New Debt

This Monday local time, Meta's data center project in El Paso, Texas completed a $12.55 billion note issuance. About 80% of the project's equity is held by funds under BlackRock, and the holding company Sopaipilla Investor issued bonds with a coupon spread of about 275 basis points over 10-year US Treasuries, with an actual yield of about 7.5%. These notes, maturing in 2048, were jointly underwritten by Morgan Stanley and JPMorgan Chase.

In comparison, the spread of outstanding bonds for Meta's Louisiana project traded at about 50 basis points lower than the new debt on the same day. The pricing difference between primary and secondary markets shows that investors are reassessing the risk premium for AI infrastructure financing, demanding higher returns to absorb the steady supply of new bonds.

Neha Khoda, Bank of America's head of credit strategy, noted: “The market expects construction to continue, but financing costs are rising.”

Previously, after Google announced an aggressive capital expenditure plan, the tech sector came under pressure, which in turn affected bond prices for companies like Microsoft and Amazon, exacerbating concerns in the market about AI-related capex and associated financing pressures.

Betting on Off-Balance-Sheet Financing to Reduce Balance Sheet Pressure

Over the past nine months, Meta has clearly accelerated its financing pace and actively used off-balance-sheet structures to ease its own balance sheet pressure.

In October last year, Meta completed a $30 billion corporate bond issuance, nearly doubling its total debt; in April this year, it issued another $25 billion in bonds, continuing to increase financing.

The latest Texas data center project’s financing arrangement is highly similar to the Hyperion project in Louisiana. The latter was advanced by Meta and Blue Owl Capital, with Blue Owl funds investing about $3 billion, taking an 80% stake, and the holding company Beignet Investor issuing $27 billion in bonds to finance a roughly 2-gigawatt data center cluster.

Both deals incorporate a “residual value guarantee” mechanism—if Meta does not renew or terminates the lease early in the future, bondholders are still assured of principal and interest. Thanks to this, the bonds received investment grade ratings, with Sopaipilla’s project rated S&P A+ and Fitch AA-.

The market is also beginning to pay attention to the risk transfer of such structures: While project financing is not included on the tech giant’s balance sheet, ultimate repayment still depends heavily on demand for AI computing power and the stability of Meta’s long-term lease commitments. Off-balance-sheet financing is becoming the norm, and its implicit liabilities and credit transmission effects are key variables in evaluating the financial resilience of tech companies.

AI Capital Race Drives Up Financing Costs

Wall Street bankers have told clients that the likelihood of a significant drop in financing rates in the short term is limited, which is forcing large AI companies to reassess the cost of infrastructure expansion.

Just as surging demand for chips, energy, and construction materials is driving up the cost of data center construction, the concentrated capital needs of AI firms are also pushing up financing prices. But in this computing power race, companies have little choice but to wait—in order to seize AI infrastructure advantages, raising capital at higher costs is still preferable to delaying construction due to lack of funds.

The market is entering a new phase: The investment boom in AI infrastructure has not cooled, but capital markets are starting to demand higher returns. Large amounts of funds will continue to flow to data center and computing power construction, but tech giants will have to pay ever-higher financing costs for this race.

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