Winnie Cisar, global head of strategy at CreditSights, noted that investors are beginning to exhibit signs of fatigue and 'choosiness' concerning AI-related debt. This shift in investor sentiment follows a significant $300 billion AI debt binge that has permeated various segments of the credit market.
This sentiment is echoed by others in the financial sector. Vishal Khanduja, head of broad markets fixed income at Morgan Stanley, expressed concerns about credit risk being undervalued, especially as mega-cap tech giants ramp up borrowing for AI projects. For instance, Amazon's recent $25 billion bond offering reportedly saw light investor demand, and spreads on other Big Tech bonds have widened, indicating investors are demanding higher yields due to increased supply.
Big Tech companies, including Amazon, Meta, Alphabet, and Oracle, have issued a combined $159 billion in debt in the first five months of the year to fund their soaring capital expenditure for AI. This aggressive borrowing has led to Big Tech accounting for over 8% of the total US corporate bond market by the end of May, a record high. Some projections even suggest that the AI debt market could swell to $7 trillion by 2029, potentially becoming the second-largest asset-backed securities market after mortgage bonds.
The massive influx of new AI debt, highlighted by a $25 billion bond issuance from Amazon and SpaceX last month, has led to a decline in oversubscription ratios for these offerings. While large issuances offer financing advantages for tech giants, investors are becoming wary of the continuous pipeline of supply, fearing that the same issuers may return to the market for more funding soon. The weakening performance of some bonds in the secondary market after listing further underscores this 'funding fatigue' among investors.
