Investor angst over Big Tech’s AI spending spills into bond market
Debt issued by groups building data centres has been hit in recent weeks
Kate Duguid and Tabby Kinder in New York
Investors have been selling off the debt of US tech heavyweights, showing how jitters over Silicon Valley’s boom in spending on artificial intelligence have spilled into the bond market.
A basket of bonds issued by so-called hyperscalers — companies that are building vast data centres, including Alphabet, Meta, Microsoft and Oracle — has sustained a hit in recent weeks.
The spread, or premium in yield that investors demand to buy the debt over Treasuries, has climbed to 0.78 percentage points, the highest level since US President Donald Trump sent markets reeling in April with his tariff plans, and up from 0.5 points in September, according to Bank of America data.
The widening spread highlights how investors are increasingly concerned with the way tech groups are turning to debt markets to finance their investments in AI infrastructure.
“The important thing the market woke up to in the past two weeks is that it’s the public markets that are going to need to finance this AI boom,” said Brij Khurana, a fixed income portfolio manager at Wellington Management.
JPMorgan on Monday said building AI infrastructure would cost more than $5tn and “will likely require participation from every public capital market as well as private credit, alternative capital providers and even government involvement”.
The mammoth scale of investment in AI infrastructure has raised concerns about overcapacity, long-term profitability and energy demands.
Google, Amazon, Microsoft and Meta will spend more than $400bn on data centres in 2026, on top of more than $350bn this year.
Tech groups are issuing debt at a quick rate to fund their AI expansion efforts despite having large cash hoards, which is something some investors worry could signal a shift to higher levels of leverage.
“The hyperscalers collectively hold [about] $350bn in liquid cash and investments and are expected to generate [roughly] $725bn of operating cash flow in 2026,” JPMorgan said.
“Even so, substantial new debt supply is coming to the credit markets from these high-quality issuers.”
In recent weeks, Meta, Alphabet and Oracle have hit markets with blockbuster debt packages, some with maturities as long as 40 years.
Meta last month forged a $27bn private debt deal with investors, including Pimco and Blue Owl Capital, to fund development of its “Hyperion” data centre in Louisiana.
It raised an additional $30bn in bonds at the end of October, the biggest corporate bond deal since 2023.
Meanwhile, Alphabet sold $25bn of bonds in early November, $17.5bn of which were raised in the US and $7.5bn in Europe.
Oracle sold $18bn of bonds in September to fund infrastructure leases such as OpenAI’s “Stargate” data centre in Abilene, Texas.
Analysts noted Oracle’s debt has been hit particularly hard in recent months.
An index compiled by the Financial Times tracking its debt that has been trading since before the latest bond sale has fallen almost 5 per cent since mid-September, compared with a price fall of about 1 per cent for a broad Ice Data Services basket tracking US high-grade tech debt.
Oracle has about $96bn of long-term debt, according to Bloomberg data.
It has rapidly grown its debt balances as part of a series of deals to lease computing power to ChatGPT maker OpenAI, which the US software group said would generate $300bn in revenue over the next five years.
But credit rating agency Moody’s has flagged significant risks from Oracle relying on large commitments from a small number of AI companies to fund its growth.
Smaller companies at the heart of the AI boom have also been hit.
Data centre operator CoreWeave’s stock has fallen more than 20 per cent over the past two weeks, alongside the drop in bigger names.
On Tuesday, the company’s shares were down a further 14 per cent after it lowered its forecast for annual revenue as a result of expected data centre delays.
The cost to protect against a default on CoreWeave’s debt has jumped as the equity price has fallen, with the group’s five-year credit default swaps trading at 505 basis points, from below 350bp at the start of October, according to LSEG data.
Some analysts argue that the decline in hyperscalers’ bonds in the wake of such large issuance is healthy.
“As long as we are still pricing incremental risk, it’s a good sign.
The thing I worry about is a rally on more supply rather than a sell-off,” said George Pearkes, a macro strategist at Bespoke Investment Group.
“We’re still in early innings in this debt cycle for AI,” he said.
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