Big Tech bets big on bonds
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Big Tech is on a bond binge to fund its AI bets, and investors seem happy to oblige.
Why it matters: Even as worries swirl around these companies going on AI spending sprees, bond investors — the so-called "smart money" — are so far telling a calmer story.
Where it stands: Tech companies need enormous amounts of cash to buy AI infrastructure, mainly energy-hungry data centers that can generate enough compute to take our jobs.
- Spending by the hyperscalers is expected to reach over $600 billion this year. Morgan Stanley researchers estimated last summer that these firms face a $1.5 trillion "financing gap" to meet their capital expenditure needs.
- Even the most profitable tech companies, which generate a lot of cash and have solid businesses, are turning to the credit markets for spending help.
By the numbers: Only less than two months into the new year, the big five hyperscalers— Alphabet, Amazon, Meta, Microsoft and Oracle — have issued $45 billion in bonds in the U.S., nearly half as much as they did for all of 2025, per PitchBook.
- That's more than they have done in any other full year since 2011.
Zoom out: Overseas investors are hungry for tech debt, too.
- Alphabet raised $32 billion in debt denominated by British pounds and Swiss francs, Bloomberg reported last week.
The big picture: Bond investors picking up high-grade debt from these companies are signaling that they feel confident in the companies' credit-worthiness, particularly Alphabet's.
- Spreads between the rate on Alphabet's bonds and U.S. Treasury yields are tight, less than 1 percentage point on the debt issued in the U.S. last week.
- Even Alphabet's 100-year bond was in demand, priced at just 1.2 points above 10-year U.K. bonds, according to Bloomberg.
Between the lines: Essentially, these tech companies are being treated by the bond market as if they were as safe as sovereign states.
Reality check: It's not at all clear yet which, if any, of these companies comes out on top in the current AI race.
- Even if they do, will their new AI businesses generate the same cushy margins that were throwing off all this cash in the first place?
- "Are the hyperscalers the economic winners?" asks Ashok Bhatia, the chief investment officer and global head of fixed income at Neuberger Berman.
Flashback: Bhatia points out the companies that borrowed money to drill for oil during the shale boom weren't the economic winners.
- "It was everybody else who benefited."
Bonus chart: Stonks tell another story. While the credit markets keep calm and throw money at these companies, the stock market is pulling back a bit.
- The stock prices of all five hyperscalers are down for the year.
