Returning to Bond Market After Five Years. Nvidia Plans to Issue at Least $20 Billion in Bonds

TradingKey - Against the backdrop of the intensifying artificial intelligence computing power race, NVIDIA ( NVDA) is planning a massive financing move.

According to a Bloomberg report, the chip giant plans to raise at least $20 billion through the issuance of investment-grade corporate bonds. This marks its first return to the debt capital markets since 2021 and suggests that the borrowing wave among AI-driven technology companies is far from receding.

NVIDIA has structured this offering into seven tranches with varying maturities, ranging from 2 years to 30 years. According to a source who requested anonymity because they were not authorized to speak publicly, the initial price guidance for the longest-dated 30-year bond is approximately 90 basis points over U.S. Treasuries.

Regarding the use of proceeds, people familiar with the matter stated that the funds will be directed toward general corporate purposes, which specifically include the repayment and refinancing of existing outstanding debt.

The underwriting lineup for this issuance is led by JPMorgan Chase ( JPM) and Morgan Stanley ( MS) acting as lead underwriters, with Goldman Sachs ( GS) also participating. However, as of the time the news broke, representatives for the three investment banks had not responded to requests for comment on the details of the issuance, and NVIDIA also remained silent.

Strategic Rationale for Nvidia’s Debt Issuance

Considering that Nvidia's last foray into the investment-grade bond market dates back to June 2021—when the deal size was a mere $5 billion—this return to the debt market after nearly four years, starting at a magnitude of $20 billion, clearly carries a strategic intent worth scrutinizing.

Taking a broader perspective, Nvidia's return to the bond market is not an isolated event; over the past year or so, Alphabet ( GOOGL ), Amazon ( AMZN) and other tech giants have cumulatively raised hundreds of billions of dollars through various debt market channels to expand the computing infrastructure required to support the rapid expansion of artificial intelligence.

Interestingly, the fixed-income market has shown a considerably high degree of acceptance for these AI-themed corporate bonds, as investors continue to absorb the massive supply, creating a situation of robust supply and demand.

Nvidia has approximately $100 billion in free cash flow on its balance sheet, and the $20 billion bond issuance is far below its idle funds. It is not like Oracle ( ORCL ), Google, or Meta ( META ), which need this money to plug the holes in AI infrastructure.

Tech giants with abundant cash flow like Nvidia choose large-scale debt issuance over utilizing their own funds largely to leverage current relatively reasonable financing costs to lock in long-term capital, while preserving cash reserves to handle potential shocks from technological iterations and geopolitical uncertainties.