Forty billion dollars on a BBB

SpaceX is trying to raise about $40bn to buy Nvidia chips, and the structure says as much as the size. According to the Financial Times, as reported by Reuters on Tuesday, the Elon Musk-led company plans about $10bn of bank loans and $30bn of investment-grade debt for the chip order. Apollo Global Management is expected to lead and to place the debt with a broad group of investors; Pimco is among a small group of lenders that have been in talks. Bloomberg described the discussions as preliminary and said they may not produce a deal, and the FT said the transaction is expected to close in 2027, Quartz reported. SpaceX, Apollo and Nvidia did not immediately comment; Pimco declined to.

The key word is investment grade. SpaceX carries a BBB rating, the second-lowest investment-grade grade, which according to the FT could make its debt available to insurance companies and pension funds that face strict limits on holding junk, Financial Express reported. That is the pool of money Apollo has made its business: lending to highly rated companies is a central part of its $800bn credit operation, and it led a $35bn financing in June for chips made by Broadcom, at the time the largest private credit transaction.

The market has already priced some of SpaceX's debt, and not generously. SpaceX received an investment-grade rating soon after its $86bn initial public offering in June and sold $25bn of high-grade bonds less than two weeks later. Those bonds came under pressure as investors worried about rising debt and heavy spending. Its bonds due 2056 now trade at about 85 cents on the dollar, with a yield about 2.27 percentage points above comparable Treasuries, according to MarketAxess data cited by Financial Express. Some investors, the same report says, have been wary because Musk has provided limited financial information, and investors approached earlier about financing the Nvidia purchase said they received only a two-page deal memo.

On our arithmetic, the new package would be 1.6 times the size of June's bond sale, and the $30bn investment-grade portion alone would be larger than it. It would arrive in a market where long Treasury yields are high: the 10-year yield pushed back above 5.3 per cent on Wednesday, according to Bloomberg, as cited by Quartz. Morgan Stanley estimates that AI infrastructure will need $1.5tn of external financing by 2028, Reuters noted, even as lenders and investors grow more cautious about the sector.

What SpaceX can point to is contracted revenue. It has signed an AI computing deal worth $1.1bn a month with an undisclosed customer, which adds roughly $13bn of annualised revenue, according to Quartz, and earlier agreements with Anthropic worth $1.25bn a month through May 2029 and with Alphabet's Google at $920m a month through June 2029. On its second-quarter call, SpaceX said it ended the quarter with 1.4 gigawatts of compute and expects to pass 2 gigawatts by the year-end, and that it spent about $18.4bn on capital projects in the quarter, roughly $15.8bn of it on AI compute, TIKR reported. Its chief financial officer, Bret Johnsen, said new compute spending had paid back in less than a year and that the company expects more than $100bn of annualised revenue by December.

Musk was explicit about the supplier in August. "We've decided to build exclusively on Nvidia because we think the Vera Rubin architecture is the best architecture," he said on the call, according to Financial Express. For Nvidia the deal is another example of the financing machinery it has been building around its own products. In August it announced plans for a platform with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR intended to mobilise more than $500bn of outside capital for AI infrastructure. Apollo has also previously arranged $7bn of financing for Musk's xAI tied to Nvidia chips for the Colossus 2 data centre in Memphis, according to Bloomberg, as cited by Quartz.

The immediate reaction was muted. SpaceX shares fell 1 per cent in extended trading after the report and Nvidia rose 0.5 per cent, Reuters reported. The test will come in the pricing. If $30bn of BBB paper clears at a spread close to where the 2056 bonds trade, it will show that insurers and pension funds are willing to fund the chip build-out at investment-grade rates on the strength of the compute contracts. If Apollo has to concede much more, it will show what lenders now think the risk of financing chips actually is.