With tech companies expected to take on as much as $1.5 trillion in debt by 2028 to finance the expansion of artificial intelligence and data centers, this could widen spreads across the market, Morgan Stanley argues. Bond buyers are starting to worry about compensating for the risks of an industry bubble, given the recent turmoil in technology stocks.
“Our biggest concern is that a flood of data center financing could cause an indigestion of supply, especially in dollar terms, but with euro markets also absorbing some of the financing needs,” said JPMorgan Chase & Co. strategist Matthew Bailey.
Investors are now wondering whether these massive investments in artificial intelligence will pay off. There are no general signs of panic in the credit sector as much of the selling so far has come from top names.
Alphabet raised $17.5 billion in the US and ₹6.5 billion ($7.5 billion) in Europe, the second-largest corporate deal in the region this year, while Meta sold $30 billion and Oracle Corp. $18 billion. Demand was huge, with Meta receiving a record order book of $125 billion. Offer abundance
Hedge fund Man Group noted that high-yield companies are also issuing shares, including former bitcoin miners. These companies’ data center plans come with “aggressive deadlines” and a heavy reliance on the supporting leases, according to a blog post titled “Why Bond Investors Aren’t Totally Buying the AI Hype.”
“A glut of supply from lower quality names in the AI space could be too much for the market,” wrote Jon Lahraoui and Hugo Richardson of Man Group. “The hyperscaler frenzy continues, but we remain vigilant against future AI doldrums,” she added.
JPMorgan’s Bailey estimates that Alphabet, Meta, Amazon.com, Microsoft and Oracle alone will need capital expenditures of about $570 billion by 2026, up from $125 billion in 2021. Meanwhile, UBS Group AG expects total technology debt supply to exceed $900 billion next year.
The fact that the major players have strong balance sheets and significant debt-raising capacity means they can offer new issuance premiums to attract investors that other borrowers may be forced to match, Morgan Stanley analysts warned.
“Tech issuers have also shown themselves to be less price sensitive given the strategic importance of these projects – a dynamic that could still reprice the broader market,” the US bank said in its recent Global Insights Outlook report. “Large issuers that are less price sensitive are a new dynamic credit market that has not been a problem for a long time.”
TD Securities strategist Hans Mikkelsen expects investment-grade credit spreads to widen to a “base range” of 100-110 basis points in 2026, up from 75-85 basis points this year, driven in part by the surge in U.S. investment-grade bond issuance, which he said could reach a record $2.1 trillion.
Still too little invested
Spreads in the corporate bond market have remained largely within a range this year, after recovering from the blow from US tariff announcements in April. The driving force behind this situation is the massive amounts of cash flowing into the asset class, driving returns at high levels compared to recent years.
For European investment-grade investors, the increase in Big Tech issuance and its diversification into the euro market offers an exposure opportunity that is still currently underrepresented, said Marco Stoeckle, head of credit strategy at Commerzbank AG.
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