Why Tech Firms Such as Tesla, Nio and Uber Are Eager to Raise Cash

Current stock and debt market conditions are nearly ideal for capital raises.
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Tech stocks are making new highs left and right, and interest rates remain at rock-bottom levels. And there’s still a fair amount of uncertainty about what 2021 will bring.

All of that gives tech companies strong incentives to raise additional capital -- even if they don’t badly need the money right at this moment.

Electric car makers -- a group of companies whose stocks have collectively gone on a tear in recent months -- have been particularly eager to do stock offerings lately.

Tesla  (TSLA) - Get Report, whose market cap continues to flirt with the $600 billion level ahead of its Dec. 21 entry into the S&P 500, recently raised $5 billion through an at-the-market offering program carried out by ten banks. Meanwhile, Chinese electric car maker Xpeng  (XPEV) - Get Report recently raised $2.5 billion through a stock offering, and peer Nio  (NIO) - Get Report is set to raise $2.65 billion through an offering that was priced this morning.

Notably, both Xpeng and Nio ended up pricing their offerings at meaningful discounts to where their stocks were trading when they announced their offerings. But with each company’s shares having registered monster gains this year, and with each company still losing money ahead of Tesla’s pending Chinese Model Y launch, it’s hard to blame them for being eager to raise cash.

Some other tech companies with high-flying stocks have also recently done capital raises. Business intelligence software vendor/Bitcoin buyer MicroStrategy  (MSTR) - Get Report recently sold $650 million worth of 0.75% convertible notes due in 2025. It plans to use the proceeds to (drumroll…) buy more Bitcoin.

AI/machine learning software developer Veritone  (VERI) - Get Report, whose stock is up more than 1,000% this year with the help of strong retail investor interest, raised $63.8 million last week. The proceeds from the offering, it’s worth noting, nearly match Veritone’s entire market cap at the start of the year.

Meanwhile, some major tech companies whose shares have seen relatively moderate gains this year have been interested in tapping debt markets.

Last week, Uber Technologies  (UBER) - Get Report sold $1 billion worth of convertible senior notes due in 2025. The notes carry no interest and feature a conversion price that’s equal to a 52.5% premium to Uber’s close on Dec. 8 (the last trading day before the offering closed).

And this morning, Microchip Technology  (MCHP) - Get Report said it’s selling $1 billion worth of debt that it plans to use to repay existing borrowings carrying interest rates ranging between 2.67% and 4.33%. Given Microchip’s healthy cash-flow profile and the current interest rate environment, it’s quite likely that its new debt will carry an interest rate below 2%.

Unless equity markets take a major swoon or debt market conditions change dramatically, look for a number of other publicly-traded tech firms to do capital raises of their own in the coming months.