Bots and bonds

If the AI boom needs fuel, the bond market is holding the gas can.

Alphabet proved that this week, raising nearly $32 billion in under a day after selling record-breaking sterling and Swiss franc bonds. It even sold a rare 100-year note, a first for a tech company since the 1990s, with demand for that century-long debt nearly 10 times the $1.4 billion offered.

The frenzy follows Oracle’s own blockbuster deal earlier this month, when the company pulled in $25 billion to bankroll its AI ambitions after investors placed roughly $129 billion in orders.

Financing the AI buildout

In aggregate, UBS calculates that companies tied to tech and AI raised about $710 billion in debt last year, and could raise nearly $1 trillion in 2026.

That growth reflects the scale of AI investment now underway. Alphabet plans to nearly double capex from $91 billion in 2025 to $185 billion in 2026, and alongside Microsoft, Amazon, and Meta, total capex among hyperscalers is projected to reach $700 billion this year—up about 60% from last year. The sheer size and speed of that spending is pushing tech giants to rely more heavily on debt, raising questions about how they plan to balance their balance sheets.

Yet bond investors seem unfazed. Credit spreads hit a 27-year low for highly rated corporate debt in late January, while junk bond spreads sit near 18-year lows. In other words, even as borrowing accelerates to fund the AI buildout, investors are demanding minimal extra compensation for the risk.

Part of the appeal is relative value: US yields remain elevated compared with most developed markets, attracting global buyers. And if the Fed cuts rates, bond prices could get another boost.

The structural shift

As tech giants ramp up AI borrowing, more of that debt is flowing into passive funds. These index-tracking vehicles buy broad baskets of bonds and typically hold them to maturity, raising concerns that their automatic demand may be distorting risk signals and leaving investors vulnerable if market conditions shift.

The coming wave of supply will test that assumption. Some warn the market could be vulnerable to a sharp repricing if demand softens. Others see a deeper shift underway: as mega-cap tech bonds take up more room in investment-grade indexes, the structure of the credit market itself may start to change.

For all its algorithmic ambition, the AI boom ultimately rests on something far more traditional: good old bonds.—SY