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What if the biggest threat to the AI boom isn’t a technology failure, an earnings disappointment, or even an equity-market correction, but the bond market? Credit investors are beginning to push back against the extraordinary amount of debt needed to finance AI infrastructure, even as equity investors continue to reward the spending. Spreads have widened for some AI-related borrowers, liquidity has deteriorated in pockets of the market, and investors are demanding better pricing and stronger protections. Credit markets may not end the AI investment cycle, but I believe they could begin to impose a speed limit on how quickly it proceeds.
A financing requirement unlike anything credit markets have seen
Current estimates discussed by our investment teams suggest AI-related debt financing could reach US$700 billion in 2027, including roughly US$300 billion of unsecured borrowing from hyperscalers and semiconductor companies, US$150 billion of data center financing, and US$250 billion of GPU financing. For context, the US-dollar investment-grade corporate market is generally estimated to total approximately US$12.5 trillion.
The issue is not necessarily creditworthiness. Many of the largest technology companies possess exceptionally strong balance sheets and cash flows. Rather, it is the scale and persistence of their capital requirements. As financing needs expand, AI borrowers will increasingly compete with one another, and with other companies seeking capital. Financing may remain available, but at wider spreads, higher yields, or with more lender-friendly structures.
The market is already becoming more demanding
Weakness among higher-leverage AI-related credits has been accompanied by thinner liquidity and wider credit-default-swap spreads. Borrowers are responding with smaller deals, shorter maturities, multicurrency issuance, amortization, combinations of debt and equity-like capital, stronger backstops, residual-value guarantees, and larger pricing concessions. The market remains open, but the terms are changing.
In my view, that shift could create opportunity for long-term credit investors through stronger structures, better protections, and more attractive new-issue concessions. Existing bonds, however, may remain vulnerable as successive waves of issuance reprice secondary markets.
The weakest links may matter most
Companies with weaker balance sheets or business models dependent on continued external financing are naturally more sensitive to higher borrowing costs. Hyperscalers and semiconductor leaders have substantially greater financial resources, but they may not be insulated from the broader financing challenge.
Strong corporate balance sheets are increasingly being used to support weaker participants through guarantees, leases, and other arrangements. That can sustain investment, but it also transfers some of the economics and risk toward higher-quality companies. For creditors and shareholders, the question is how far those companies will extend their balance sheets to support the AI investment cycle.
Supply itself could become a credit headwind
The prospective volume of issuance also deserves attention. Historical analysis suggests that rapid debt growth across a significant portion of a sector can pressure spreads. Sustained AI issuance could continually reset clearing levels, forcing borrowers to pay larger concessions to attract capital.
That argues for selectivity. As a team, we currently favor maintaining a structural underweight to some aggressive borrowers and areas facing substantial supply, while remaining willing to add exposure when new issues offer sufficient compensation. And while it may sound obvious, I think it is worth calling out that technological success, borrower quality, and bond valuation are not necessarily the same thing.
Credit could become a macro transmission mechanism
The bigger question extends beyond individual securities. If credit markets demand steadily higher borrowing costs, companies can accept lower returns, provide stronger protections, raise more equity, lean on stronger balance sheets, or slow investment.
A slower build-out could moderate economic growth and inflation. Conversely, if AI investment proves relatively insensitive to higher financing costs, even more capital could be drawn into the sector, potentially putting upward pressure on yields and spreads elsewhere.
That is why credit markets warrant as much attention as AI earnings, adoption, and equity valuations. Financing demand should expand the opportunity set for bond investors, but supply, structure, liquidity, and borrower discipline will matter enormously. The AI revolution may continue, but credit investors could increasingly determine the price and pace at which it gets financed.
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional or accredited investors only.
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