Big Tech needs a staggering $1.5 trillion to -2-

TeraWulf lost $132 million and Cipher lost $71 million in the 12 months ending June 30, according to FactSet, making it difficult for them to raise money to build the infrastructure needed for their agreements with Fluidstack. But as evidenced by CoreWeave and OpenAI, companies in the age of AI need not meet profitability prerequisites before entering into financial contracts - as long as a Big Tech company is willing to cosign for them, like a wealthy parent helping a child secure a mortgage.

In what's called an equity wrap, Google, the world's fourth-biggest company, agreed to backstop $3.2 billion of Fluidstack's obligations to TeraWulf and $1.4 billion to Cipher, receiving warrants to purchase equity stakes in the miners in return, securities filings show. Under the agreement, Google will pay TeraWulf and Cipher up to the predetermined amount if Fluidstack backs out of these data-center leases, reducing the risk for the miners.

The deals offer Google two key advantages: financial upside through its warrants and, more important, future priority access to cloud capacity. The arrangement strategically avoids a capital-intensive undertaking for Google, as TeraWulf and Cipher bear the cost of owning the data centers.

"We have a long history of partnering with data-center colocation providers to bring our Cloud technologies closer to customers around the world," a Google spokesperson told MarketWatch. "Our partnerships with Cipher Mining and TeraWulf are an extension of that strategy as we focus on increasing capacity to meet customer needs."

That's exactly how TeraWulf became the first-ever crypto miner to raise debt in the high-yield corporate bond market last month. The move could kick off a trend of data centers funded by junk bonds - debt issued by companies too financially shaky to be rated investment-grade by the ratings agencies.

In the biggest junk-bond sale since the landmark 1989 leveraged buyout of RJR Nabisco, TeraWulf issued $3.2 billion worth of bonds to finance its data-center build-out in upstate New York - notably, the same amount as the Google backstop. While ratings agencies were debating the bond's placement on the junk scale, Google's guarantee de-risked the offering enough to secure a BB rating from Fitch, positioning the issuance on the most creditworthy side of the junk spectrum. Google is "ultimately stepping under the debt in its totality," Simplify's Green said.

TeraWulf and Cipher Mining did not respond to requests for comment.

If unprofitable bitcoin miners can raise public debt with the backing of the hyperscalers, then the hyperscalers themselves can undoubtedly do the same.

It's an increasingly relevant topic. Data-center projects like Meta's Hyperion or Amazon's Project Rainier come with price tags in the tens of billions of dollars. Intense investment spending led free cash flow at Google, Meta, Amazon and Oracle to decrease year over year in the first half of 2025, according to data from FactSet.

Some have indeed tapped the corporate bond market to fuel massive long-term AI spending plans. In September, Oracle issued an $18 billion bond offering for its data-center build-out, including one tranche of bonds with a 40-year maturity date. Oracle isn't the first to use such long-term debt - last year, Meta's $10.5 billion bond issuance also included a 40-year tranche.

Meta came to the credit market again last week, reporting the sale of $30 billion worth of bonds last week, which a securities filing shows also includes 40-year maturities. Alphabet announced on Monday that it is currently in the process of selling several billion dollars' worth of bonds in both the U.S. and Europe, an offering that a securities filing says includes maturities of up to 50 years.

Meta and Alphabet did not respond to a request for comment.

But corporate bonds aren't the financing tool of choice for Big Tech, which built its blue-chip status on low debt levels. The "Magnificent Seven" group of megacap tech companies may want to avoid incurring interest payments that could eat into earnings and pressure their stock valuations, according to Morgan Stanley's Patkar.

CoreWeave is a cautionary tale: It's been able to raise debt rapidly, but even with the financial support of Nvidia, the strategy has come with high interest rates. D.A. Davidson analyst Gil Luria sees CoreWeave's debt levels as a key financial risk. He highlighted in a note last month that the company's interest expenses are outpacing its operating income, meaning the business doesn't make enough from operations to pay its lenders. Luria anticipates the situation will worsen, as CoreWeave is expected to take on more debt to finance its expansion. As of June 2025, CoreWeave's weighted average interest rate on short-term debt was 12.3%, up from 9.6% six months prior, according to company filings.

As a result, Morgan Stanley anticipates that corporate bond issuances will only account for around $200 billion of the $2.9 trillion global spending on AI from 2025 to 2028.

The absence of AI-driven revenues seems to be contributing to this trend. If and when the Big Tech companies drive more AI-related revenues, "we think investors will have a clearer line of sight to facilitate unsecured debt issuance," Patkar wrote.

Private credit

Data centers could be turning into "an investable class of assets," one strategist said.

Blue Owl and Pimco fought their way through a competitive lineup of rivals including Apollo and KKR to secure the Meta private-credit deal, reportedly by proposing a more flexible financing structure that offered Meta increased control over the debt.

As major tech players tussle for scarce GPUs and computing capacity, an equally heated scramble is playing out among Wall Street asset managers. Private-credit funds - which have historically serviced smaller, riskier borrowers - are hungry for a piece of the AI trade and more than happy to oblige Big Tech's bespoke requests for raising massive amounts of capital without incurring debt and hurting free cash flows. Returns in the private-debt space have come down from their recent peak in 2021 - with the exception of infrastructure debt, which has returned 13.1% in the last year, compared with the mid-single-digit returns of other strategies, according to a PitchBook report.

The Meta and Blue Owl partnership could be "a blueprint for how funding may work in this next era," according to Arthur D. Little's McDevitt.

"You've created a data center as an investable class of assets, in a way," he said.

Blue Owl did not respond to requests for comment.

The structure of Meta's private-credit deal expands on the overall trend of Big Tech companies leasing data centers instead of building them. Microsoft and Oracle are increasingly using finance leases - debtlike long-term liabilities - for their AI infrastructure plans, securities filings show.

"From a cash-flow perspective, you're not buying the equipment," Jeffrey Foster, a finance professor at Georgetown University, said of leasing.

Unlike an upfront purchase, finance leases allow companies to spread the cost of the asset over periodic payments with the option to own the asset, similar to how someone might finance the use of a new car. Although finance leases aren't classified as traditional debt on the balance sheet, ratings agencies take them into consideration when assessing financial risk.

This sort of asset-backed financing, collateralized by a contractual stream of cash from the underlying data center or equipment, can be done by traditional Wall Street banks. But the appeal of private credit comes from its flexibility. Post-2008 regulations have imposed limits on how much banks can lend to a single client. That means a bank may already be near its regulatory threshold on credit exposure to a Big Tech company, restricting its ability to fund a new data center, according to Foster. The banking rules designed to prevent another too-big-to-fail crisis have created a large private-credit industry in which financial firms raise money from investors, as opposed to depositors.

For its Hyperion site, Meta has entered into four-year initial operating leases with the joint venture to use the facilities upon completion. Unlike finance leases, which are typically long-term agreements with no cancellation options, operating leases resemble a shorter-term rental and offer increased flexibility. But Meta has also promised to reimburse investors for potential losses if it terminates its lease early and the value of the data center falls below a predetermined level during the first 16 years of operation.

Despite the off-balance-sheet structure of the deal, "the debt is so large I imagine Meta would still have to disclose it in their footnotes," Foster said.

Asset-backed financing presents a great risk-reward trade-off for Big Tech. Leasing costs are typically an annual 7% to 10% of the upfront cost, more expensive than investment-grade corporate bond-market rates but still "quite affordable for cash-rich hyperscalers, especially if this means avoiding large capital spend," according to Patkar. The Morgan Stanley strategist anticipates that $800 billion of the total $2.9 trillion of AI capital expenditure will be funded by some form of private credit in the next three years.

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11-08-25 0830ET