Chamath Palihapitiya Warns AI Boom Has a Borrowing Problem as Big Tech Debt Nears $400 Billion, Threatening to 'Crowd Out' US Treasury Demand: 'The Entire US Economy Is Levered to the AI Complex'

Venture capitalist Chamath Palihapitiya warned that AI companies’ debt has reached an estimated $340 billion to $400 billion, threatening to crowd out U.S. Treasury demand, as seven or eight firms drive a massive spending push.

Cash-Rich Tech Giants Shift Into AI ‘Spending Binge’ Mode

Speaking on the All In podcast episode that aired on Friday, Palihapitiya said "seven or eight companies" now set the tone for the entire country.

“The entire United States economy is levered to the AI complex,” said Palihapitiya.

The Sri Lankan-born Canadian-American tech commentator said these firms were once highly profitable and cash-generative. They are now in what he called a "massive spending binge" on AI.

The warning comes as the spending strains balance sheets. S&P Global Ratings (NYSE:SPGI) cut its outlook on Meta Platforms Inc. (NASDAQ:META) to negative on Friday, citing uncertain capital spending and cash flow.

Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) reported negative free cash flow, meaning it spent more than it generated.

Big Tech Debt Surges as AI Spending Drains Cash

Palihapitiya said the heavy spending is draining cash, forcing the companies to raise debt.

Microsoft Corp. (NASDAQ:MSFT) was the exception, he said. He credited CEO Satya Nadella with halving the company’s debt while peers borrowed far more.

Microsoft’s latest results show how the spending debate is playing out. Yorkville Ives analyst Dan Ives called the company a "barometer" for AI spending. Azure, its cloud platform, grew 48% year over year, beating expectations of about 45%.

Markets are noticing. Bloomberg Tech host Ed Ludlow said "Wall Street cares about free cash flow now," as investors grow less tolerant of cash-hungry AI spending.

Treasury Market Crowd-Out Risk for Investors

During the podcast, the bigger concern, Palihapitiya said, is "crowding out." That happens when heavy borrowing by one group absorbs investor money that would otherwise go elsewhere.

He said AI firms’ funding needs through the end of 2027 equal about 30% of expected U.S. Treasury issuance over the same period. Treasuries are debt securities sold by the federal government. In his view, the companies will compete with them for investor demand.

The strain is already visible. OpenAI reportedly cut its latest fundraising target by $10 billion to about $20 billion amid a tech selloff driven by AI spending worries.

Read Next

Markets

Meta's $145 Billion AI Spending Plan Raises Credit Concerns as S&P Global Turns Outlook Negative: ‘Less Certain That It Will Curtail Its Spending’

S&P Global cuts Meta’s credit outlook to negative as rising AI spending and cash flow pressures raise concerns over leverage.

2 min read

Read this article

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image via Shutterstock