NEW YORK: Investors are growing uneasy that the rapid rise in public debt used to bankroll AI investments could strain the U.S. corporate bond market and eventually dampen the appeal of tech stocks, despite leverage across most major companies remaining low for now.
Big tech firms are turning aggressively to the debt markets in their race to build AI-ready data centers, a shift for Silicon Valley firms that typically relied on cash to fund their investments.
Since September, public bond issuance by four of the major cloud computing and AI platform companies known as “hyperscalers” has hit nearly $90 billion, with Google owner Alphabet (GOOGL.O), selling $25 billion in bonds, Meta $30 billion, Oracle $18 billion, and Amazon the most recent, $15 billion, according to Reuters calculations of publicly available data.
Only Microsoft (MSFT.O), opens new tab , the fifth one, has not tapped the debt market in recent weeks.
Investors say that, so far, they are not overly concerned about the impact on stock valuations because of the recent fundraising, since these companies remain lightly leveraged relative to their scale.
But the sudden pickup in public debt issuance has raised questions about the market’s ability to absorb the surge in supply and is feeding into growing worries over AI-related spending that have helped trigger a sharp pullback in U.S. stocks this month after six months of gains. The S&P 500 is still up 11% this year, with tech stocks among the main contributors to gains.
“You have all these hyperscaler issuance coming out, and I think the market woke up to the fact that it’s not going to be private credit markets that are going to fund AI, it’s not going to be free cash flow. It’s going to have to come from the public bond markets,” said Brij Khurana, portfolio manager at Wellington Management Company.
“You need capital to come from somewhere to finance this,” he said. “What’s happening is a recognition that you need money almost coming out of stocks into bonds.”
Including a $27 billion financing deal Meta struck with Blue Owl Capital in October to fund its biggest data center project, hyperscaler debt issuance has jumped to over $120 billion this year from an average of $28 billion over the past five years, analysts at BofA Securities said in a recent note.
Rising debt at tech companies adds a new layer of concern to a market that, despite being fueled by the promise of high AI returns, remains wary that the technology has yet to deliver the profits needed to justify such large capital spending.
“There are doubts that have emerged in the last few weeks around the AI spend story that are related to … the need for firms to be able to finance that, and that includes through debt finance,” said Larry Hatheway, global investment strategist for Franklin Templeton Institute.
AI capital expenditure is projected to increase to $600 billion by 2027, up from over $200 billion in 2024 and just under $400 billion in 2025, and net debt issuance is expected to reach $100 billion in 2026, Sage Advisory, an investment management firm, said in a recent note.
While hyperscalers have been ramping up borrowing, Nvidia (NVDA.O), a major supplier of computing power to them, has trimmed its long-term debt from $8.5 billion in January to $7.5 billion by the end of the third quarter. Credit ratings agency S&P Global Ratings last month revised its outlook on the company to “positive” from “stable,” citing revenue growth and robust cash flow.
Microsoft and Oracle declined to comment. An Amazon spokesperson said proceeds from its recent bond sale will fund business investments, future capex, and repay upcoming debt maturities, noting that such financing decisions are part of routine planning. Alphabet and Meta did not immediately comment.–Reuters
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