Big Tech companies are engaged in a significant borrowing spree to fund their ambitious AI infrastructure projects, leading to concerns among investors. Amazon's recent $25 billion bond offering, while substantial, saw investor demand peak at $62 billion, roughly half of what its $37 billion offering in March garnered, signaling a potential moderation in investor enthusiasm. This latest issuance consists of eight tranches with various maturities, and the proceeds are intended for general corporate purposes, including capital expenditure and debt repayment. Amazon has already tapped multiple markets this year, including euros, Swiss francs, and Canadian dollars, with this offering reportedly fulfilling its US dollar funding needs for 2026.
This influx of new debt puts pressure on existing bonds from hyperscale cloud providers such as Amazon, Alphabet, Nvidia, Meta, Oracle, and SpaceX. Investors are selling off these older bonds to free up capital for new issuances, akin to selling one property to buy another. This phenomenon has made the technology sector one of the weakest performers in the US investment-grade corporate bond market. Analysts note that while the underlying credit fundamentals of these tech giants remain strong, the sheer volume of new debt is a concern. Morgan Stanley's Vishal Khanduja highlighted that "credit risk is too undervalued" and expressed surprise at Amazon's latest offering, as many investors believed the company was done borrowing for the year.
The overall AI-related bond sales globally have soared to about $335 billion so far in 2026, more than double last year's levels. This heavy supply is pushing new issue concessions higher, with analysts expecting Amazon's new deal to pay 10 to 15 basis points more compared to existing bonds. Some investors, like Janus Henderson, are underweight in the tech sector due to the expected continued supply of debt. Concerns are also emerging about the long-term impact, as the AI debt market is projected to swell to $7 trillion by 2029, and tech giants, including Amazon, Alphabet, Microsoft, and Meta, could collectively spend over $700 billion on AI this year. Without more large-scale equity raising, spreads on these bonds are likely to remain under pressure.
