Alphabet (GOOG, GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT), and Oracle (ORCL) are expected to make capital expenditures of about $800 billion this year and $1.2 trillion next year, according to Goldman Sachs. As costs squeeze their cash flow, these tech giants are increasingly turning to the bond market. Through August, U.S. 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 exceeded $400 billion this year and is advancing at an annualized rate of more than $500 billion, according to a quarterly report from the Institute of International Finance (IIF). American companies accounted for approximately 90% of the total. While the magnitude of this year’s debt glut has not yet proven to be a constraint for Big Tech, the bigger question is how capital markets will absorb its growing financing needs. This flood of new debt has raised a broader question for the bond market: Could it crowd out other bond issuers, driving down their prices and raising 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 bonds reaching their highest level since 2007 and 2004, respectively. Even Federal Reserve Chairman Kevin Warsh acknowledged earlier this month that competition from hyperscalers for capital is already playing some role. “So-called hyperscalers are in the market raising funds,” Warsh said. “Competition for capital is real and I think that partly explains the increase in yields,” he added. Yahoo 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 U.S. Treasuries and AI-linked bonds. The bonds funding AI development are primarily longer-term, while Treasury issuance has shifted to shorter maturities, limiting overlap. Treasury buyers and large-scale bond buyers also tend to be separate groups of investors, Vishwas Patkar, head of U.S. credit strategy at Morgan Stanley, said during an IIF briefing on Wednesday. The share of global bond issuance by non-financial corporations has also “remained broadly stable,” according to the IIF report. Earlier this week, asset management firm Pimco said it came to a similar conclusion after finding no statistically significant rise in 10-year Treasury yields over the past six AI mega debt offerings. But the rise of AI may add upward pressure on rates even if investors don’t choose hyperscaler bonds over Treasuries.
