How AI is impacting the high yield market

AI is no longer just an equity story. Increasingly, it is also a defining force in the high-yield bond market. What began as a technology-driven narrative is evolving into a broad-based capital cycle, with meaningful implications for bond issuance, sector dynamics, and credit risk.

For me, the key takeaway is clear: AI is not a single theme within high yield, it is a structural shift that is reshaping the opportunity set, driving dispersion, and underscoring the importance of active management and flexibility.

A new AI capex cycle is fueling credit demand

At the heart of the AI story is an extraordinary surge in capital expenditure. Building the infrastructure required to support AI, like data centers to power generation, requires trillions of dollars in investment globally over an extended period. To finance this growth, issuers are increasingly turning to credit markets, including high yield.

The impact is already visible. High-yield issuance tied to AI infrastructure is accelerating sharply, equating to roughly 20% of total high-yield issuance year to date compared to 5% in 2025 (Figure 1).

Figure 1

Investment implications

Emergence of a new, investable subsector

AI is creating a new subsector within high yield, focused on data centers and digital infrastructure. A diverse range of issuers is now tapping high-yield markets to finance expansion. These new issuers are often supported by long-term contracts with hyperscalers, but their financing structures can be complex, incorporating elements of structured credit, securitization, and project finance.¹

For investors, this creates exposure to both:

• A fast-growing, mission-critical segment of the economy
• New, albeit less-tested, credit structures

Access to the broader AI ecosystem

While the market primarily focuses on investment-grade-rated technology companies given the scale of “Mag 7” issuance, the opportunity set within high yield relates to the broader AI ecosystem, including:

• Power and utilities, which are seeing surging demand from energy-intensive data centers
• Telecom and network infrastructure, which enable connectivity
• Industrial and hardware suppliers, which support the physical build-out of the AI ecosystem

A growing divide between winners and losers

As the AI theme matures, a clear credit divide is emerging. On one side are companies benefiting from the build-out, notably those tied to infrastructure, energy, and enabling technologies. On the other side, we see companies facing disruption, particularly in software, IT services, media, and insurance brokers.

Lessons from past capital cycles

Previous large capex cycles, for example in the telecom sector in the 1990s and the energy sector in the mid-2010s, were characterized by overinvestment, increasing leverage ratios, and higher defaults. The AI build-out shows early signs of similar dynamics. The scale of investment is enormous but the ultimate level of demand, pricing power, and returns remain uncertain. Not all issuers will generate sustainable cash flows, and not all valuations will prove justified, implying significant dispersion ahead.

What I’m watching

At a high level, I expect continued volatility among issuers facing potential AI-driven disintermediation risk. While it remains too early to determine the ultimate extent of AI’s disruptive impact, I believe the resulting uncertainty will create attractive investment opportunities.

From a positioning perspective, I think investors need to question long-held assumptions about how assets are likely to behave throughout the cycle, with issuer dispersion likely to increase further as markets seek to assess a wide range of potential scenarios.

Given the above, I believe flexible, total-return-oriented strategies that emphasize fundamental credit selection are best positioned to capitalize on opportunities and generate alpha.

¹ Project finance is a form of financing used to fund large, long-lived infrastructure and industrial projects, where lenders are repaid primarily from the project's future cash flows rather than the balance sheet of the sponsor.