SpaceX in $40 billion debt raise to buy Nvidia chips

SpaceX's reported $40 billion debt raise to buy Nvidia chips places it in an awkward middle ground in the AI capex wars. Unlike mature tech giants such as Google and Meta, which fund their AI spending from large advertising profits, or startups like OpenAI and Anthropic, which can raise venture capital without needing to pay their own bills, SpaceX has gone public and must now service debt. Its Starlink business helps prop up its cash-guzzling rocket operations, but it is not the cash cow that ad businesses are. The company needs to borrow because it is spending more on AI than it takes in from its other businesses.

By going public in June, SpaceX locked itself out of the raise-and-pray venture capital world. However, its stock price's sideways lurch since then makes issuing new shares to pay for its growing AI tab unattractive. Its BBB credit rating is two notches below Meta and Alphabet, making it a tougher sell with blue-chip bond funds. Enter Apollo, which has a pot of money to match seemingly every risk out there, including cash-strapped governments. Oracle finds itself in a similar position.

The outcome hinges on whether Apollo and other lenders are willing to absorb the risk of a company with a lower credit rating and a stock that has not rewarded investors since its IPO. For SpaceX, the stakes are whether it can secure the chips needed for its AI ambitions without straining its balance sheet further. For bond investors, the question is whether the yield on SpaceX debt compensates for the risk of lending to a company that is not yet generating enough cash to cover its AI spending.