Alphabet (GOOG, GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT), and Oracle (ORCL) are expected to see capital expenditures of roughly $800 billion this year and $1.2 trillion next year, according to Goldman Sachs.
As the costs eat into their cash flow, these tech giants are increasingly turning to the bond market. Through August, US companies have 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-linked companies has already surpassed $400 billion this year and is running at an annualized pace above $500 billion, according to a quarterly report from the Institute of International Finance (IIF). US companies accounted for roughly 90% of the total.
While the scale of this year’s borrowing binge hasn’t yet proved to be a constraint on Big Tech, the bigger question is how capital markets will absorb their growing financing needs.
This flood of new debt has raised a broader question for the bond market: Could it crowd out other bond issuers, sending their prices lower and boosting yields?
The question comes as the global bond market has faced a tumultuous week, with the yield on the 10-year Treasury and 30-year Treasury reaching their highest level since 2007 and 2004, respectively.
Even Federal Reserve Chairman Kevin Warsh acknowledged earlier this month that hyperscaler competition for capital is already playing some role.
“The so-called hyperscalers are out in the market raising funding,” Warsh said. “The competition for capital is real, and I think it partly explains the increase in yields,” he added.
But so far, researchers have found little evidence to suggest that bond market competition or any so-called crowding-out effect has occurred directly between US Treasurys and AI-linked bonds.
Bonds funding the AI build-out are primarily longer-term, while Treasury issuance has shifted to shorter date maturities, limiting overlap. Treasury buyers and hyperscaler bond buyers also tend to be separate investor groups, said Vishwas Patkar, Morgan Stanley’s head of US credit strategy, during a Wednesday IIF briefing.
The share of global bond issuance by nonfinancial corporations has also “remained broadly stable,” according to the IIF report.
Earlier this week, asset management firm Pimco said it reached a similar conclusion after finding no statistically significant increase in 10-year Treasury yields around the past six mega AI debt offerings.
But the AI boom can add upward pressure on rates even if investors aren’t picking hyperscaler bonds over Treasurys.