Large technology companies, known as "hyperscalers" like Meta, Alphabet Inc., and Amazon.com Inc., are significantly increasing their borrowing to finance the development of data centers and other artificial intelligence infrastructure. Barclays analysts project that debt issuance by these companies will likely surpass $200 billion this year and could grow further into 2027. Capital expenditures, which were approximately $725 billion this year, are expected to approach $1 trillion next year and could reach $1.2 trillion by 2028, highlighting the massive scale of investment in AI.
This surge in AI-related debt is testing the capacity of the investment-grade bond market. While there are no immediate signs of saturation, with AI-related debt constituting almost 15% of total investment-grade issuance in the U.S. according to Barclays, bankers are exploring new strategies to manage the increasing volume. Some believe that the sheer scale of AI debt could push the investment-grade market beyond $2 trillion for the first time in 2026.
Hyperscalers are diversifying their funding sources by issuing bonds in various currencies beyond the U.S. dollar to access a broader investor base and prevent saturation in the American market. For instance, Amazon raised €14.5 billion ($16.56 billion) in March through an eight-part euro corporate bond deal, the largest of its kind. Alphabet has also set records by issuing bonds in yen, Canadian dollars, Swiss francs, and sterling, along with selling a 100-year bond, marking a significant trend in global bond markets.
Financial analysts, such as Jeff Given of Manulife Investment Management, indicate continued investor demand as hyperscalers prioritize long-term AI projects. However, concerns are emerging among investors regarding the market's capacity to continuously absorb such high supply. Despite the high quality and liquidity of these bonds, some analysts are highlighting potential risks like increased contagion and private credit market growth, which could obscure the true extent of leverage within complex fund financing structures.
