Concerns Rise Among Investors Over AI-Linked Debt Risks

Key Points

• AI infrastructure companies are issuing debt to finance their capital spending on data centers.

• The bond market has become more skeptical than the stock market about AI’s potential to deliver good returns on investment.

Morgan Stanley reports that global debt issuance related to AI reached $236 billion as of May 31, a fourfold increase from the previous year. The investment bank anticipates this figure will rise to $570 billion by the end of 2026.

Four major companies – Meta Platforms, Alphabet, Amazon, and Microsoft – are projected to spend a combined $700 billion on capital expenditures this year, mostly on AI-related projects. As demand for hyperscaler bonds declines, the ratio of asset demand to supply dropped from 5x in February to 2x in July, indicating that these companies may need to offer higher interest rates to attract investors.