What happened
US investment-grade corporate bond sales reached $1.7 trillion this year, driven by technology companies' substantial borrowing for AI infrastructure. Global technology firms issued $428.3 billion in bonds, with US companies accounting for $341.8 billion. This marks a shift from internal cash to debt financing. The median debt-to-EBITDA ratio for over 1,000 tech firms has nearly doubled since 2020, indicating debt growth outpacing profits. AI-related debt now constitutes the largest segment of the US investment-grade market.
Why it matters
The significant increase in AI-related corporate debt introduces a heightened financial constraint on technology firms, increasing exposure to market volatility and potential liquidity challenges. This shift necessitates greater due diligence for financial planning and risk assessment, particularly concerning debt servicing and capital allocation for AI initiatives. The burden falls primarily on treasury, financial operations, and risk management teams, who must manage increased leverage and the potential impact of AI stock performance on credit markets.
