Alphabet (GOOG, GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT) and Oracle (ORCL) are expected to make capital spending of about $800 billion this year and $1.2 trillion next year, according to Goldman Sachs.
As costs eat into their cash flow, these tech giants are increasingly turning to the bond market. Through August, U.S. companies issued $1.9 trillion in bonds, a 30% increase from the same period last year, according to SIFMA. data.
At the same time, global bond issuance by AI-related companies has already exceeded $400 billion this year and is occurring at an annualized rate. more than $500 billion, according to a quarterly report from the Institute of International Finance (IIF). American companies accounted for about 90% of the total.
Although the scale of this year’s borrowing frenzy has not yet proven to be a constraint for big tech, the bigger question is how capital markets will absorb their growing financing needs.
This flood of new debt raises a broader question for the bond market: Could it crowd out other bond issuers, driving down their prices and raising yields?
The question arises as the global bond market faced a tumultuous week, with 10-year and 30-year Treasury yields hitting their highest levels since 2007 and 2004, respectively.
Even Federal Reserve Chairman Kevin Warsh acknowledged earlier this month that hyperscale competition for capital was already playing some role.
“The so-called hyperscalers are in the market to raise money,” Warsh said. “The competition for capital is real and I think it partly explains the rise in yields,” he added.
But so far, researchers have found little evidence to suggest that bond market competition or other crowding out effects are occurring directly between U.S. Treasuries and AI-linked bonds.
Bonds funding AI development are primarily long-term, while Treasury issues have moved to shorter maturities, limiting overlap. Treasury buyers and hyperscale bond buyers also tend to be distinct investor groups, Vishwas Patkar, head of Morgan Stanley’s U.S. credit strategy, said at an IIF briefing Wednesday.
The share of global bond issuance by non-financial corporations also “remained broadly stable,” according to the IIF report.
Earlier this week, asset management firm Pimco said it reached a similar conclusion after seeing no statistically significant increase in 10-year Treasury yields around the last six mega AI debt offerings.
But the AI boom may add upward pressure on rates, even if investors don’t favor hyperscale bonds over Treasuries.
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