Credit markets on both sides of the Atlantic are facing a potential crisis as Big Tech companies accelerate their borrowing to fund artificial intelligence expansion, with some analysts warning the market may struggle to absorb the coming wave of debt issuance.
The Scale of AI Financing
Wall Street firms and investors are sounding alarms that the recent pace of mega bond offerings from technology giants could continue into 2026, potentially overwhelming buyers and weakening credit conditions. This surge has already contributed to a record year of global debt issuance.
According to Morgan Stanley analysis, technology firms are expected to turn to debt markets for as much as US$1.5 trillion by 2028 to fund their expansion into artificial intelligence and data center infrastructure. This massive borrowing could widen credit spreads across the entire market.
Recent major offerings include Alphabet raising US$17.5 billion in the United States plus €6.5 billion (approximately US$7.5 billion) in Europe - marking the second-largest corporate deal in the European market this year. Meanwhile, Meta sold US$30 billion in bonds, and Oracle Corporation completed an US$18 billion offering.
Investor Concerns Mount
Bond buyers are increasingly questioning whether they're being adequately compensated for the risks of what some are calling a bubble in the artificial intelligence sector, particularly given recent volatility in technology stocks.
JPMorgan Chase & Co. strategist Matthew Bailey expressed particular concern about market capacity, stating: "Our biggest concern is that a flood of data centre financing could cause supply indigestion, particularly in dollars, but with euro markets also absorbing part of the funding needs."
While there are no broad signs of panic in credit markets currently - largely because most sales have come from top-tier companies with strong balance sheets - investors are growing increasingly skeptical about whether these massive AI investments will ultimately deliver returns.
The demand for tech debt remains substantial for now, with Meta's recent offering generating a record peak orderbook of US$125 billion, demonstrating significant investor appetite despite growing concerns.
Quality Concerns and Market Impact
Hedge fund Man Group PLC has noted that lower-quality, high-yield firms are also entering the market, including former bitcoin miners transitioning to AI-related data center operations. In a blog post titled "Why Bond Investors Aren't Totally Buying the AI Hype," analysts Jon Lahraoui and Hugo Richardson warned that these companies often operate with "aggressive deadlines" and heavy reliance on supporting lease contracts.
"A glut of supply of lower quality names in the AI space might be too much for markets to stomach," they wrote, adding that while "the hyperscaler frenzy continues, we remain watchful of future AI slop."
The capital expenditure requirements are staggering. JPMorgan's Bailey estimates that just five companies - Alphabet, Meta, Amazon.com Inc., Microsoft Corp. and Oracle - will need approximately US$570 billion for capital expenditures in 2026, up dramatically from just US$125 billion back in 2021.
Meanwhile, UBS Group AG projects total technology debt supply could exceed US$900 billion next year alone.
Morgan Stanley analysts highlighted another concern: because major tech players have strong balance sheets and significant debt capacity, they can offer new issue premiums that appeal to investors, potentially forcing other borrowers to match these terms.
"Tech issuers have also shown themselves to be less price-sensitive given the strategic importance of these projects — a dynamic that can still reprice the broader market," the bank noted in its Global Insights outlook report. "Large issuers who are less sensitive to price is a new dynamic credit markets haven't contended with for a long time."
