The spread, or premium in yield investors demand to buy the debt over Treasuries, has climbed to 0.78 percentage points, the highest level since Donald Trump sent markets reeling in April with his tariff plans, and up from 0.5 points in September, according to Bank of America data. <\/p>\n
The widening spread highlights how investors are increasingly concerned with the way tech groups are turning to debt markets to finance their investments in AI<\/a> infrastructure. <\/p>\n \u201cThe important thing the market woke up to in the past two weeks is that it\u2019s the public markets that are going to need to finance this AI boom,\u201d said Brij Khurana, a fixed income portfolio manager at Wellington Management.\u00a0<\/p>\n JPMorgan on Monday said building AI infrastructure will cost more than $5tn and \u201cwill likely require participation from every public capital market as well as private credit, alternative capital providers and even government involvement\u201d.<\/p>\n The mammoth scale of investment in AI infrastructure has raised concerns about overcapacity, long-term profitability and energy demands.<\/p>\n Google, Amazon, Microsoft and Meta will spend more than $400bn on data centres in 2026, on top of more than $350bn this year. <\/p>\n Tech giants are issuing debt at a quick rate to fund their AI expansion efforts despite having large cash hoards, something some investors worry could signal a shift to higher levels of leverage.<\/p>\n \u201cThe hyperscalers<\/a> collectively hold [about] $350bn in liquid cash and investments and are expected to generate [roughly] $725bn of operating cash flow in 2026,\u201d JPMorgan said. <\/p>\n \u201cEven so, substantial new debt supply is coming to the credit markets from these high-quality issuers.\u201d <\/p>\n In recent weeks, Meta, Alphabet and Oracle have hit markets with blockbuster debt packages, some with maturities as long as 40 years.<\/p>\n Meta last month forged a $27bn private debt deal with investors including Pimco and Blue Owl Capital to fund development of its \u201cHyperion\u201d data centre<\/a> in Louisiana. It raised an additional $30bn in bonds at the end of October, the biggest corporate bond deal since 2023. <\/p>\n Meanwhile, Alphabet sold $25bn of bonds in early November, $17.5bn of which were raised in the US and $7.5bn in Europe.<\/p>\n Oracle sold $18bn of bonds in September to fund infrastructure leases such as OpenAI\u2019s \u201cStargate\u201d data centre in Abilene, Texas. <\/p>\n Analysts noted Oracle\u2019s debt has been hit particularly hard in recent months. An index compiled by the Financial Times tracking its debt that has been trading since before the latest bond sale has fallen nearly 5 per cent since mid-September, compared to a price fall of about 1 per cent for a broad Ice Data Services basket tracking US high-grade tech debt. <\/p>\n Recommended<\/p>\n
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