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LONDON, Nov 3 (Reuters) - Seemingly Teflon U.S. Treasuries have good reason to sit up and take notice of another twist in the AI story last week, one that could add pressure alongside a more hesitant Federal Reserve. What if the corporate AI spending spree now starts to compete with the government for borrowed funds? Amid all the hoopla around another blistering quarter of AI investment plans from America's megacaps, Meta's $30 billion bond sale jumped out as a sign that not all of the hyper-spending is being funded by deep wells of cash. Leverage is creeping into a capex boom that's estimated to hit some $400 billion overall this year alone. Sign up here. Its joint venture in the mega Louisiana plant known as "Hyperion" is with Blue Owl Capital, which in the previous week raised $27 billion in the biggest single-tranche bond deal on record. As some estimate Meta's free cash flow could now be slightly negative next year, the stock price dropped a whopping 11% on Thursday - its biggest one-day drop in three years and lopping more than $150 billion off its market value. It didn't bounce back on Friday. Meta's modest debt-to-earnings ratio at midyear of just 0.5, according to Moody's, and its high credit rating meant it had no problem raising the funds. But the scale of the bond did cause a murmur in the wider Treasury market as underwriters hedged their positions. And while some might argue Meta's position may be something of an outlier among the other AI behemoths, it's not the only company in that space now borrowing big. Oracle's $18 billion debt sale last month was one of the largest tech bonds ever. JOCKEYING FOR FUNDS On one level, creeping leverage in the AI boom raises the stakes in what some fear may be a bubble in the making. Plowing cash into a bet on the future is one thing - borrowing to do it means the revolution really has to deliver and it ups the burden of proof that the returns will follow. But it also harks to a wider issue of competition for capital - not least with the U.S. Treasury as it pursues its own vast fundraising needs. And here's where the picture has changed in recent years. "Re-industrializing" America now appears to be transforming previously cash-rich tech and services firms that have dominated the landscape for more than a decade into bricks-and-mortar and energy investors like their predecessors. The country's aggregate corporate balance sheet may shift back dramatically too as a result. Jason Thomas at Carlyle spotlighted this earlier this year, pointing out a shift in the aggregate U.S. corporate profile between 2009 and through the pandemic. Rather than borrowing 15% of GDP from investors as they had done in prior decades, he calculated, U.S. firms found themselves lending 22% of GDP in the form of cash hoards, share buybacks and special dividends. In the process, that freed up significant amounts of private capital to fund the government's expanding debt piles - further cosseted by a long period of near-zero Fed interest rates and which helped cap debt servicing costs for Treasury. If the AI mega spend now burns away that cash and even sees a renewed corporate borrowing expansion, then the still-rising Treasury debt load may soon find itself in a beauty contest with the world's biggest companies for investor capital. And it may have to pony up a lot more in interest payments in the process. Last week's developments won't shift the dial on their own. And the Fed calculus and growth trajectory remain central factors. But the direction of travel on corporate leverage could well alter the playing field in the years to come. The opinions expressed here are those of the author, a columnist for Reuters -- Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn. Plus, sign up for my weekday newsletter, Morning Bid U.S. By Mike Dolan; Editing by Lisa Shumaker Our Standards: The Thomson Reuters Trust Principles., opens new tab Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
