Artificial intelligence (AI) has driven equity markets in recent years, and now, the hyperscalers are set to make their mark on the bond market.
In recent months, some of the largest names in Silicon Valley have announced high-profile bond sales as big tech looks to fund the build out of data centres and energy supply to power AI.
At the end of October, Meta announced a record-breaking $30bn debt issuance. The deal reportedly attracted $125bn in investor demand, making it the largest corporate bond issuance of 2025 and among the largest in history.
Amazon followed in mid-November with its first US bond sale in three years, raising $15bn. Given the scale of issuance coming through, how do fixed income investors think this trend will impact dynamics in the corporate bond market?
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Firstly, its likely the issuances are the beginning of a trend, rather than a one-off. Christian Hantel, head of global corporate bonds and portfolio manager at Vontobel, notes the issuance trend is only likely to accelerate further in 2026, after AI-related investments accounted for approximately 30% of total net issuance in the US dollar-denominated investment grade market in 2025.
The hyperscalers are partially financing AI infrastructure spend through the corporate bond market, with other avenues such as private credit and leveraged finance being tapped as well.
“When it comes to corporate bond markets specifically, current estimates suggest around $300bn in AI or data center-related bond issuance over the next year, and approximately $1.5trn over the next five years,” the Vontobel manager adds.
“This would make the AI-related segment a significant component of corporate bond indices, representing 15-20% of most indices — larger than the US banks component in some cases.”
“There’s a new game in town in the credit markets, and that’s the tech companies,” says AXA IM chief investment officer Chris Iggo. “For investors, it’s really interesting because it gives them an opportunity to access the cash flows that are being generated by the tech sector without taking on the equity volatility. That Meta deal particularly was very well subscribed, which shows there is real demand for these kinds of instruments.”
Credit spreads
Demand for the bonds has been exceptionally strong, partly owing to the tech companies enjoying strong credit ratings. Microsoft is AAA-rated by Standard & Poors, meaning it is more trusted to pay back its debt than the US government, for instance.
Alphabet (AA+), Meta (AA-), and Amazon (AA) also have strong credit ratings.
Bond investors argue the surge in issuance is likely to cause spreads to widen as the hyperscalers business models change. Stephen Snowden, head of fixed income at Artemis, says these companies have “aggressively” shifted from asset-light to capex-heavy business models.
“The balance sheets can bear this, but we’re now seeing the largest corporate bond issuances in history coming through,” he says. “Some of these tech companies, because they had so little debt a couple years ago, were trading 20 basis points over. They’re not anymore.”
He adds Oracle has particularly caught the eye. The Texas-based tech firm, which holds a BBB credit rating, announced an $18bn bond sale in September. Oracle’s credit default swaps — the price of insurance against default on their bonds — have widened recently amid concerns over the leverage on the firm’s balance sheets, which Snowden says shows that credit quality is “deteriorating quite rapidly”.
“We will continue to see a widening of credit spreads for the world’s largest companies as their balance sheets become more leveraged,” Snowden adds. “It’s like ripples in a pond.
“If the AA credits are now trading like single A credits, do people start treating them as single As and reprice them accordingly, or do they have to back up the price of single-As [in the wider market] because of this? I think you’ll see underperformance of the highest quality credits rather than a total dislocation.”
Hantel also notes the substantial volume of bonds issued has begun to contribute to a widening of credit spreads. This trend may persist, he says, given the significant issuance requirements anticipated for the coming year.
Risks
However, the expansion of AI companies into the bond markets comes with risks, particularly in the high yield space.
“This part of the high yield market brings significant risks, and so far we have avoided investing in the space,” says Al Cattermole, fixed income portfolio manager at Mirabaud Asset Management.
“There are serious questions of circularity in the contracts being signed in the sector, with all the major players buying and selling computing power from each other. With little transparency around the clauses in these contracts, particularly around potential delays to data centre construction, it is difficult to carry out traditional credit analysis on these bonds.”
He also cites overcapacity as a concern, given the amount of funding that is being poured into data centres leading to questions over whether the planned capacity will ultimately be needed or delivered.
“This is a rapidly evolving sector, and many of the data centres being built could quickly be rendered obsolete by technical improvements that make chips more efficient and reduce the requirement for so much capacity,” Cattermole says.
“Ultimately, the construction of data centres specifically for generative AI is a new trend so there is a speculative edge to this form of lending, with no history to refer back to. For the moment, data centre lending represents a small percentage of the US high yield index.
“However, we expect to see more issuance in the space over the coming years, which is likely to bring more dispersion, as those with a high-quality backer and robust contracts will pay a lower interest rate to borrow than others.”
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Looking ahead, Neuberger Berman CIO and global head of fixed income Ashok Bhatia, believes the hyperscalers are generally well positioned to expand their debt loads, with greater risk affecting smaller players.
“Dynamics across industries will vary; companies with scale, entrenched competitive positioning, strong management teams and more-advanced AI integration should be best positioned to navigate this shift. The broader impacts of AI on the economy and labour markets could be highly fluid, and bear watching closely in the coming months.”
Allspring Global Investments’ fixed income chief operating officer and senior portfolio manager Henrietta Pacquement adds the firm’s fixed income desk is taking a cautious approach due to the sheer scale of the issuance trend.
“We have to watch the distinction between the various issuers. There are some that have got slightly weaker balance sheets or slightly weaker opportunities to monetise the AI story going forwards. Also, you need to be paid for the risk that you’re taking, therefore it is also a question of looking at valuations themselves for these issues.”
“In summary, the AI capex boom is making a profound impact on the corporate bond market, with ripple effects across multiple sectors,” concludes Vontobel’s Hantel. “This trend is potentially reshaping index compositions and creating new opportunities and challenges for investors. Far from being a passing phenomenon, the AI-driven transformation of the bond market is expected to accelerate in coming months.”
