Major technology companies like Amazon.com Inc., Meta Platforms Inc., and Alphabet Inc. are issuing significant amounts of debt to finance their AI infrastructure build-outs. These companies, largely rated in the AA tier, are contributing to a perceived increase in safety within the US corporate bond market. According to a Barclays Plc analysis through the end of June, AA and A-rated bonds now constitute 52% of Bloomberg's US investment-grade bond index, up from approximately 46% in 2021, driven by these tech giants' debt sales.
This trend marks a departure from historical practices where tech companies primarily used their extensive cash reserves for capital expenditures. The reliance on leverage and the complex nature of some financing deals are introducing new levels of risk into the market, a concern for equity investors despite the uplift in average bond ratings. Analysts note that the tech sector's debt footprint is on track to surpass that of the entire U.S. banking sector, significantly altering the structure of the investment-grade credit market which has historically leaned towards financial institutions.
Over the past five years, the largest builders of AI data centers, including Alphabet, Amazon, Meta, Microsoft, and Oracle, have collectively added approximately $350 billion in debt. Furthermore, recent studies reveal that the “hidden debt” or off-balance-sheet liabilities of major U.S. technology firms, including Meta Platforms Inc., have reached $1.65 trillion. This figure is substantially higher than the $1.35 trillion reported on their financial statements and represents nearly an eightfold surge over the last four years. For instance, Meta's off-balance-sheet debt is reported at $420 billion, almost triple its recorded liabilities, while Oracle's hidden debt has increased over 30 times to $273.3 billion, raising concerns about financial transparency and potential under-appreciated risks.
