US investment-grade corporate bond sales are nearing record levels, driven by substantial borrowing from technology companies investing heavily in artificial intelligence. This year, investment-grade borrowers have issued $1.7 trillion in bonds, approaching the peak seen during the Covid-19 pandemic in 2020. The surge in debt is fuelled by the need for even cash-rich companies to fund the construction of AI computing power.
Global technology companies have issued $428.3 billion in bonds this year, with US firms accounting for $341.8 billion. This trend marks a shift as companies, traditionally reliant on internal cash, increasingly turn to debt financing due to lower borrowing costs and high investor demand. However, this large-scale financing is raising concerns about leverage and debt repayment. An analysis of over 1,000 tech firms shows their median debt-to-EBITDA ratio nearly doubled compared to 2020, indicating debt is growing faster than profits.
JPMorgan notes that AI-related debt now constitutes the largest segment of the US investment-grade market, surpassing the US banking sector. While narrow bond spreads for AI firms are justified by their high credit quality, a potential sell-off in AI stocks could impact the credit market. Increased capital expenditure or M&A activity before debt servicing could also pose risks.
