Tech companies are flooding bond markets to raise billions of dollars to build the infrastructure needed to power artificial intelligence.\u00a0<\/p>\n
U.S. companies have issued more than $200 billion worth of investment grade (IG) corporate bonds this year to fund AI-related infrastructure projects \u2014 about 13% of total IG issuance, as of<\/a> end-October. <\/p>\n AI debt is \u201creshaping credit markets,\u201d Janus Henderson analysts wrote<\/a> last week. <\/p>\n Five companies account for most of the borrowing: Amazon, Google, Meta, Microsoft, and Oracle. These firms \u2014 known as hyperscalers \u2014 are building the data centers needed to power AI models.<\/p>\n Collectively, they’ve raised $121 billion of IG debt this year, Bank of America analysts wrote in a November 17 note. Around $75 billion of this was issued in September and October alone \u2014 amid two interest rate cuts \u2014 which is more than double the sector’s average annual issuance during the prior decade, BofA data shows. The borrowing is expected to push total U.S. corporate bond issuance to a record $1.8 trillion next year, according<\/a> to JP Morgan. <\/p>\n Yet, concerns are building that hyperscalers are spending too much. Magnificent Seven stocks have fallen about 7% in November, according to an exchange-traded fund<\/a> that tracks their performance. <\/p>\n Now, with debt-financed data centers thrown the mix, frankly, bond markets aren’t sure how to react. Hyperscaler auctions started off oversubscribed. Cut to Monday, however, when Amazon sold<\/a> of $15 billion of notes, and orders fell an unusually steep 40% once pricing was revealed. That’s double the typical dropoff rate. <\/p>\n But should the dreaded AI bubble exist, will it burst over debt markets too?<\/p>\n Widening spreads<\/p>\n Spreads have widened \u2014 a sign bonds are perceived to be riskier, as investors are demanding an additional yield.\u00a0In September, amid the deluge of new debt, bonds issued by Amazon, Microsoft, Meta, and Alphabet saw their spread over Treasuries widen towards 80 basis points from around 50, according to BofA data.\u00a0<\/p>\n But Oracle appears to be in league of its own. The spread on its bonds have widened by 48 basis points since September. Its $3.25 billion, 5-year bond, is trading<\/a> 104 basis points over Treasuries<\/a> \u2014 doubling since September 15.\u00a0<\/p>\n Demand for credit default swaps (CDS) \u2014 insurance-like contracts which protect investors against a company defaulting \u2014 on Oracle bonds has also surged, widening spreads and making it more expensive for investors to insure their debt. The spread on Oracle\u2019s five-year CDS has more than doubled since September, according to<\/a> ICE Data Services, to the highest cost since 2023.<\/p>\n The ‘Mount Rushmore’ of credits<\/p>\n But analysts say widening spreads doesn\u2019t mean that hyperscaler bonds are risky assets.<\/p>\n Robert Schiffman, senior credit analyst at Bloomberg Intelligence, refers to hyperscalers as the “Mount Rushmore” of credits with \u201cmassive financial flexibility\u201d to add hundreds of billions of dollars of debt due to their large balance sheets and historically tight margins. The recent widening in spreads reflects minor weakness in the technicals \u2014 a surge in supply \u2014 rather than in the fundamentals of the companies themselves, says Schiffman. <\/p>\n Meta, Microsoft, Alphabet, and Amazon have credit ratings ranging from AA- to AAA.\u00a0In their third quarter earnings for 2025, these companies’ trailing twelve-month cash flow from operating activities ranged from $30 billion to almost $340 billion.\u00a0<\/p>\n