Investors fret over AI debt

Marc Filippino (0:02)

Good morning from the Financial Times. Today is Friday, October 16th, and this is your FT News Briefing.

The UK might implement a new bank tax, and chip stocks had a week that investors probably want to forget. Plus, the FT's Chief Economics commentator Martin Wolf shares his thoughts on America, the midterms and democracy. I'm Marc Filippino, and here's the news you need to start your day.

We're getting more and more hints that UK banks could get hit with higher taxes. Chancellor John Healey said at the IMF meetings on Thursday that he had some decisions to make in regards to the UK's financial services sector. This comes after a report in The Guardian said, that Healey is poised to implement higher taxes on banks. The Treasury though declined to comment on that. Healey is trying to find a way to keep the budget deficit under control, and he wants to do that without breaking an important promise Labour made during the last election. The party said it wouldn't raise income tax, value added tax, or employee national insurance contributions. Increasing levies on banks is one way around that, but we'll find out for sure if Healey will do it when he releases the budget in about two weeks.

Anthropic seems pretty darn close to graduating from a junk credit rating to investment grade. The AI Labs received a double B grade from Croll Bond Rating Agency in June. That's according to documents that FT reporters have seen. Now obviously that score is from a while ago, but it was never publicly reported. And the FT's US credit correspondent, Michelle Chan says, that's a big deal.

Michelle Chan (1:48)

Because we previously reported that bankers acting on behalf of Anthropic have been lobbying to obtain an investment grade credit rating after it goes public.

Having an investment grade rating or having a high rating in general would help them lower the borrowing cost and help them to get the lenders comfortable with their credit worthiness.

So having an IG stem of approval from credit rating agencies is essential for them to tap a large pool of capital and for them to do massive fundraising after the IPO.

Marc Filippino (2:20)

But Michelle says KBRA, the rating agency, didn't have full access to Anthropic's financials when it gave the company this grade. We should say that KBRA and Anthropic declined to comment.

Michelle Chan (2:30)

In a traditional credit rating report, you will see a full forecast including earnings, net profit, financial modeling, all the figures being laid out in the report. But in this one, they used an in-house credit risk score, which is pretty rare in a credit rating, and they only got a very limited set of financials from Anthropic. So the fact that Anthropic was able to get such a strong rating, a very limited financial disclosure was very impressive.

Marc Filippino (2:59)

Now, reminder, Anthropic got this rating a few months ago.

Since then, there have been quite a few bumps in the road for artificial intelligence. Some CEOs have recently called for a slowdown in developing the tech because they're worried humans could lose control of it. But Michelle says Anthropic is still on track for an investment grade rating.

Michelle Chan (3:17)

It looks like after the IPO, once they have a lot of cash cushion, they are pretty close to an investment grade according to the framework developed here by KBRA. But we have to note that KBRA is not one of the big three credit rating agencies. It also depends on how other credit rating agencies look at Anthropic and whether other credit rating agencies would get the company as much leeway as KBRA does.

Marc Filippino (3:40)

That's the FT's US credit correspondent, Michelle Chan.

Now, Anthropic might be making moves towards its IPO, but this week overall was not a happy one for AI tech stocks. Investors are worried about debt, and we saw that worry come across in a rough selloff and shares of chip companies. Here to talk to me about that is the FT's markets columnist, Katie Moran. Katie, things look a little queasy, don't they?

Katie Martin (4:10)

Look, queasy is the word. We're not a death store here, but it's not pretty in markets today. We're speaking on Thursday.

Let's start from the beginning of the global trading day in Asia. The Korean stock market, which I'm sure a lot of your listeners know is absolutely rammed full of semiconductor stocks that had a really bad session that closed down 8 percent. That bled through to later trading hours in Europe and somewhat into the US as well. There is just a real sense of nerves now, a kind of uh-oh moment that says, hang on, there's a lot of companies out there that have borrowed an awful lot of money to build an awful lot of data centers, and we still don't really have a good understanding of how they're going to make money out of this, and has it all gone a little bit too far, too fast.