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AI Funding Frenzy: Tech Giants Flood Corporate Bond Market
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Published in Stocks and Investing on Friday, November 21st 2025 at 8:08 GMT by The Globe and Mail- 🞛 This publication is a summary or evaluation of another publication
- 🞛 This publication contains editorial commentary or bias from the source
Jitters Over AI Spending Set to Grow as US Tech Giants Flood Bond Market
The United States corporate bond market is on the brink of a new wave of turbulence, as a raft of high‑profile tech firms are borrowing heavily to fuel the AI boom. The Globe & Mail’s latest piece, “Jitters over AI spending set to grow as US tech giants flood bond market,” tracks how companies like Alphabet, Microsoft, Amazon, Nvidia, and others are leveraging the low‑rate environment to issue multibillion‑dollar bonds that are earmarked for artificial‑intelligence research, cloud infrastructure, and talent acquisition. While the surge in debt provides a powerful engine for future growth, it also raises red flags for investors, regulators, and even the firms themselves.
The Low‑Rate Environment That Made This Possible
For much of the past decade, the Federal Reserve’s benchmark rates have hovered near zero, and Treasury yields have remained languishing. In this climate, borrowing costs for even the most credit‑worthy issuers have dipped to a single‑digit range. “Tech companies have historically been able to borrow at sub‑par rates because they’re viewed as low‑risk, high‑growth businesses,” notes Daniel Li, senior bond analyst at Macquarie. “When the Fed lifted its policy rate in 2022 and is expected to keep tightening this year, the margin between the cost of new debt and the yields investors demand is narrowing.”
With rates expected to climb by 25 to 50 basis points over the next year, the market is already pricing in higher yields on new issuances. The article links to a Bloomberg piece that shows that the 10‑year Treasury yield, which stood at 1.8% in early 2023, is now trading around 4.1%, a sharp rise that squeezes the spread for corporates. In a low‑rate world, tech giants had little incentive to hesitate, and the “debt wave” is now gathering momentum.
AI as the New Growth Engine
Artificial intelligence is no longer a niche R&D project; it has become a central pillar of corporate strategy for the biggest names in technology. According to a report linked in the Globe & Mail article—an analysis from Gartner—AI spending across the US tech sector is projected to reach $200 billion by 2026, a 30% increase over 2023 levels. Companies are betting that AI will unlock new revenue streams, cut operating costs, and drive next‑generation products.
Microsoft’s recent $9.5 billion bond issuance, disclosed through a SEC filing, earmarked the proceeds for “intelligent cloud infrastructure” and “AI research.” Alphabet’s $10 billion note—issued in 2021—was explicitly marketed as “AI and machine learning.” Amazon, Nvidia, and other firms have followed suit, each raising billions to expand data centers, purchase GPUs, and acquire AI startups.
Investor Concerns: Leverage, Liquidity, and Sustainability
While the debt is largely “investment‑grade,” the sheer volume is raising alarms. The article cites a research note from Moody’s, which warns that the debt‑to‑EBITDA ratio for the top 20 tech firms could climb to 2.8x in 2024, a level at which many investors would consider a “sub‑investment‑grade” classification. Furthermore, the liquidity of AI‑dedicated bonds is less certain than traditional tech notes. Many of these issuances are “hybrid” securities—part debt, part equity—making secondary market pricing more volatile.
“The narrative is that AI will pay for itself,” says Susan Patel, a portfolio manager at Fidelity. “But the reality is that if AI projects take longer to mature, or if market adoption stalls, these bonds could become risky.” She points out that investors are demanding higher yields on new issuances; the spread on a 5‑year AI note has widened from 65 to 95 basis points since the last quarter.
Market Dynamics: A Shift in Bond Allocation
The influx of AI‑funded debt is reshaping the overall corporate bond market. The article’s linked data from the U.S. Treasury Department shows that tech issuances now account for roughly 25% of all new corporate bonds issued in 2023—a share that has nearly tripled since 2019. Traditionally, the finance and energy sectors dominated the issuance landscape, but tech’s ascendancy reflects the sector’s appetite for scale.
At the same time, the rise in AI‑focused bonds has increased the proportion of “high‑yield” notes in the portfolio of large institutional investors. “This is a structural shift,” notes Li. “If the Fed keeps tightening, the risk premium on high‑yield AI bonds could widen dramatically, forcing investors to rethink their allocation.”
Regulatory and Macro‑Economic Implications
The article hints at a possible regulatory response. While the SEC currently treats AI‑funded bonds the same as any other corporate debt, lawmakers are considering whether the unique nature of AI investments warrants additional scrutiny—particularly given concerns about data privacy, algorithmic bias, and systemic risk. A recent statement from the Federal Reserve, linked in the article, emphasized the need to monitor the “maturity mismatch” that can arise when firms take on debt for long‑term AI projects that may not deliver returns for years.
Moreover, the broader macro‑economic backdrop adds to the unease. Inflationary pressures and the possibility of a recession mean that the “growth story” of AI might not be enough to offset higher borrowing costs. If consumer spending cools or if AI adoption stalls, the debt load could become unsustainable.
Bottom Line: A High‑Risk, High‑Reward Play
The article ultimately frames the current scenario as a “high‑risk, high‑reward” proposition. For tech giants, borrowing is a way to secure resources that could yield competitive advantages and massive returns. For investors, the trade‑off is clear: lower yields in a low‑rate environment versus the potential for higher returns if AI projects hit their targets.
As the bond market reacts to the looming rate hikes and investor sentiment shifts, it will be fascinating to see whether the “AI debt wave” accelerates, stalls, or even reverses. For now, the message is unmistakable: the world of AI is no longer confined to silicon labs; it’s also reshaping the balance sheets of the most powerful companies in the world—and with them, the pulse of the entire financial system.
Read the Full The Globe and Mail Article at:
[ https://www.theglobeandmail.com/investing/article-jitters-over-ai-spending-set-to-grow-as-us-tech-giants-flood-bond/ ]
