"Even after adjusting for inflation, big tech companies are issuing more bonds than during the late 1990s. And the companies aren't just refinancing existing debt-they're taking on additional debt. "While the increasingly aggressive (and creative) borrowing by AI companies won't be their downfall, if they do fall short of investors' expectations and their stock prices suffer, their debts could quickly become a problem," Zandi wrote."
""That's not the case with the AI boom," Zandi added. Even though hyperscalers like Amazon, Google, Meta, and Microsoft could pay for the AI buildout with their profits, bond issuance is the "cheapest and cleanest" way to finance an infrastructure buildout of this scale, which will likely last more than a decade and be worth trillions of dollars, Shay Boloor, chief market strategist at Futurum Equities, told Fortune."
Large technology firms are issuing more bonds now than during the late 1990s even after adjusting for inflation, and they are taking on new debt rather than merely refinancing. The ten largest AI companies are set to issue more than $120 billion this year. Debt-financed AI infrastructure buildouts may span more than a decade and cost trillions of dollars, prompting firms to prefer long-term, low-spread bonds. The AI boom differs from the dot-com era, when internet firms relied mainly on equity and venture capital. Rising borrowing could become a financial-system risk if companies miss revenue expectations and stock prices fall.
Read at Fortune
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