Chipmaker Nvidia seeks to raise over $25B in first bond deal since 2021

Bond sale to gauge investor enthusiasm for greater AI sector exposure amid a surge in borrowing.

Chipmaker Nvidia is set to sell $25 billion in investment-grade debt in the United States on Monday, marking its first bond issuance in five years, as a measure of investor willingness to increase their exposure to the artificial intelligence industry.

In a prominent seven-part bond offering, the company will issue securities with maturities spanning from two to 30 years, according to a term sheet reviewed by the FT.

The offering was increased from $20 billion after attracting more than $85 billion in orders by early afternoon in New York, according to sources familiar with the matter.

Due to strong demand, the 10-year tranche of the bond was anticipated to yield 0.5 percentage points above US Treasuries, a reduction from the 0.75 percentage points initially discussed, one of the sources said.

Favorable market conditions following the US-Iran agreement are enabling Nvidia to borrow at a relatively low expense, said Lauren Wagandt, a portfolio manager at T Rowe Price.

"It's a very high-quality company at the end of the day," said Wagandt. "And it doesn't come to the market as often as the other tech names."

The issuance by the semiconductor firm, which has benefited the most from Big Tech's trillion-dollar spending on AI infrastructure, occurs as technology companies race to secure funding amid an intensifying AI competition, and as Wall Street faces a flood of new equity and debt offerings, including SpaceX's record $75 billion initial public offering.

"We intend to use the net proceeds from this offering for general corporate purposes, including repayment and refinancing of outstanding notes," Nvidia stated.

Monday's offering is at least three times larger than Nvidia's previous bond sale in 2021 during the coronavirus pandemic, when it raised roughly $5 billion. Upon completion, it will more than triple Nvidia's outstanding debt to about $30 billion from the current $8.5 billion.

Early indications of market exhaustion have led some technology companies to seek alternative funding sources.

Anthropic has turned to private credit investors to finalize a $35 billion deal backed by Broadcom. Google's parent company Alphabet decided to issue equity for the first time in over two decades, raising $85 billion in fresh capital earlier this month.

Nvidia's role as the AI industry's primary supplier of the powerful chips needed to build large language models like OpenAI's GPT has been highly profitable for the Silicon Valley company, with its free cash flow in the year through January surging 59 percent to $96.6 billion.

However, after its valuation peaked at around $5.7 trillion in May, its shares have declined alongside the broader semiconductor market in recent weeks, with its market capitalization falling below $5 trillion at the end of last week.

While reaping substantial profits from AI spending, Nvidia has also become a major investor in AI companies, committing over $90 billion in total to developers, including OpenAI, Anthropic, and xAI, and suppliers such as Coherent, Marvell, Lumentum, and Corning. In some cases, it has also agreed to serve as a backstop or financial guarantor for customers building cloud computing services using its chips, including CoreWeave and Nscale.

The growing use of financial guarantees and the interconnectedness of AI companies have sparked concerns about concentrated risks among bond investors, said Tom Murphy, global head of investment-grade credit at Columbia Threadneedle Investments.

"The market has started to get worried about these circular financings, because if somebody in that ecosystem is having a problem, then the whole thing could be a problem," Murphy said.

Nvidia holds a double-A credit rating, the third-highest level. More indebted AI player Oracle sits just two notches above a junk rating.

Goldman Sachs, JPMorgan, and Morgan Stanley are active bookrunners for the transaction.