NEW YORK, Sept 22 ( ) - The market for highly rated corporate credit has split in two: bonds issued by AI-related firms are being met with caution, while those sold by so-called traditional issuers such as financial and industrial firms are prompting spirited bidding. Portfolio managers say they are not concerned that hyperscalers and other AI-linked companies are in danger of defaulting. Rather, the sheer volume and unpredictability of borrowing needed to finance data centers, chips and AI infrastructure are prompting bond market shoppers to demand generous concessions and to rethink portfolio concentration limits.
Gross debt issuance from hyperscalers is expected to hit a record $420 billion next year, up 60% from 2026 estimates, Goldman Sachs data show. In comparison, overall US corporate issuance through August was up 30% from a year earlier to $1.9 trillion, according to the Securities Industry and Financial Markets Association trade group. "We're being very selective in terms of how we invest within hyperscaler debt," said Colby Stilson, head of fixed income at Brown Advisory in London.
"Our degree of investment conviction needs to be very high because of the coming supply and because of the lack of visibility into that return on invested capital." Outside the AI complex, corporate bond spreads remain near historically tight levels and new deals are often heavily oversubscribed. Loren Moran, fixed income portfolio manager at Wellington Management, pointed to recent pharmaceutical and insurance acquisition financings that attracted strong demand and required little or no pricing concession as buyers sought opportunities "ex-hyperscaler." Investors still have cash to deploy, she added, but many increasingly prefer to deploy it away from the AI investment boom. The divergence was evident in recent bond sales.
Google parent Alphabet had to offer a large concession to complete its August debt sale, according to BNY in a research note, while insurance broker Aon's $13.5 billion acquisition financing this month drew $65 billion of orders. The flurry of buying meant pricing on its 30-year tranche tightened by 35 basis points, analysts said, underscoring investors' appetite for scarcer bonds. For hyperscalers, data-center operators and chip-related borrowers, spreads have steadily widened as investors struggle to absorb a relentless stream of supply.
Spreads on AI-related issuers have remained persistently wider at around 115 basis points, according to the latest Goldman data. That compares with 78 basis points for the broader investment grade market, ICE BofA data showed. Lon Erickson, portfolio manager at Thornburg Investment Management, said bonds issued by major AI spenders such as Meta Platforms and Alphabet have consistently traded wider than similarly rated peers, though the firms generate lots of cash and have strong balance sheets.
The spread premium reflects expectations that borrowers will keep returning to the market as AI-related capital expenditures soar. "Investors are only able to digest so much, so fast," Erickson said. AI issuers are being forced to offer concessions to complete transactions.
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