The average bond financing cost for U.S. investment-grade technology corporate borrowers, relative to the broader U.S. market, has reached its highest level since 2003. Analysts note that as funding supply continues to expand, U.S. tech bond spreads could widen further. U.S. technology companies are seeking to diversify their substantial funding needs across different currencies and markets. BNP Paribas forecasts that net supply of investment-grade corporate bonds in the eurozone will grow by 83% by 2027.
Financing needs for AI infrastructure are steadily expanding, driving up debt‑financing costs for U.S. high‑tech firms. As American tech companies race to invest hundreds of billions of dollars in data centers and computing power infrastructure, the bond market is beginning to demand greater risk premiums.
Data compiled by Bloomberg show that the average bond financing cost for U.S. investment-grade technology corporate borrowers, relative to the broader U.S. market, has reached its highest level since 2003.
U.S. technology corporate bond spreads have risen to three-year highs, while overall investment-grade bond market spreads remain relatively stable, further widening the funding cost gap between the technology sector and other issuers.
U.S. tech giants still require substantial capital to sustain AI infrastructure development, but as bond issuance continues to grow, investors are demanding higher yields to compensate for potential credit risks and supply pressures. Analysts note that, as financing supply keeps expanding, U.S. tech bond spreads could widen further.
AI financing costs remain high, and companies are widely seeking funding across multiple markets.
Data centers, chips, and power infrastructure require continuous massive capital investment, and major tech companies such as Google, Microsoft, Meta, Amazon, and Oracle are raising funds for these investments through the bond market.
U.S. technology companies are seeking to diversify their substantial funding needs across different currencies and markets. BNP Paribas forecasts that the eurozone's net supply of investment-grade corporate bonds will grow by 83% by 2027, reaching €192 billion ($214 billion), up from €105 billion this year.
However, an increase in financing channels does not imply that the market's capacity to absorb new issues can expand indefinitely. As issuance volumes rise, investors' required risk premiums on newly issued bonds are also increasing.
AI-funded companies are relatively insensitive to financing costs because they require substantial capital to maintain their competitive edge. However, as more and more firms enter the bond market simultaneously, investors' available capital and risk tolerance ultimately have limits, forcing tech companies to offer higher yields to secure funding successfully.
Credit risks at Oracle and other companies are drawing attention.
The bond market's repricing of AI financing risks is already reflected in the credit spreads and credit default swap (CDS) markets for some large technology companies.
Bond yields of hyperscale cloud service providers have risen recently, with Oracle's bond spread drawing particular attention. JPMorgan analysts note that Oracle's bond spread is about 2.8 times that of the overall investment-grade bond index, reaching a record high.
The cost of hedging credit risk for AI-related companies is rising. Alphabet's credit default swap costs have nearly doubled over the past year, and Oracle's CDS quotes have also risen significantly.
According to the Financial Times, trading activity in the AI-related CDS market is increasing, with the net notional amount of relevant CDS rising from less than $7 billion a year ago to nearly $30 billion. The spread on NVIDIA's five-year CDS has climbed to 141.5 basis points, reflecting growing investor concern about debt risks in the technology sector.
Changes in the CDS market do not necessarily signal an imminent default by the relevant companies, but they do indicate that investors are stepping up risk hedging and remain increasingly vigilant about the debt-servicing capacity of AI‑related firms and their future financing needs.
AI's return on investment and debt burden have become the market's focal points.
Behind the rising financing costs for tech companies lies the uncertainty surrounding the scale of AI infrastructure investments and their future cash-flow returns.
Major tech companies are still accelerating the construction of data centers and expanding computing capacity, but such investments require sustained capital outlays, while the timeline for realizing returns, the profitability of AI businesses, and the future scale of capital expenditures remain uncertain.
As the scale of debt financing expands, investors are not only concerned about whether companies can continue to raise capital but are also placing greater emphasis on whether their future cash flows will be sufficient to service the additional debt burden.