AI Spending Frenzy Reaches Bond Market! Tech Giants' Capital Splurge Has Bond Investors Worried

The arms race in artificial intelligence (AI) infrastructure is spreading from the stock market to the bond market. As cloud giants like Alphabet (GOOGL-US), Amazon (AMZN-US), and Meta (META-US) repeatedly raise their capital expenditure forecasts, fixed-income investors are beginning to reassess the credit risks behind these massive AI bets. Corporate bond yields have risen and credit spreads have widened, indicating that even these 'once-safest issuers' are now being demanded higher risk premiums.

A key trigger was Alphabet's latest upward revision of its annual capital expenditure guidance this week. Upon the announcement, the company's bond yields immediately rose. Market concerns extend beyond Alphabet, as Microsoft, Amazon, and Meta are all expected to continue ramping up AI investments in the coming quarters.

Analysts warn that energy costs are becoming a hidden killer eroding AI's profitability. Cloud providers are building AI data centers across the U.S. at an unprecedented pace, and electricity has emerged as one of the heaviest operational cost items for such projects.

Scott Strazik, CEO of GE Vernova (GEV-US), cautioned that inflationary pressures could remain elevated amid unresolved geopolitical tensions.

This week, international oil prices surged back above the $100 per barrel mark, further fueling market anxieties over rising data center costs. At the same time, U.S. Treasury yields have also risen, making bond investors more cautious.

Mizuho Securities stated bluntly in its latest report that the tech giants' ever-expanding capital expenditure plans are approaching the limits of investor tolerance. Companies once seen as 'capital fortresses' with near-impenetrable financial health are now feeling the pressure from rapidly escalating AI-related costs.

Mizuho further forecasts that next year, the combined capital expenditures of cloud giants will exceed their total free cash flow for the first time—meaning these companies will have to rely increasingly on external debt to fund their massive AI infrastructure ambitions.

A credit fund portfolio manager admitted that investor focus—both equity and fixed income—has completely shifted from 'whether to invest in AI' to 'whether these astronomical capital expenditures can ever be recouped.'

Amid this wave of skepticism, Oracle's (ORCL-US) 5-year credit default swap (CDS) spreads have noticeably widened.

Barclays analyst Andrew Keches noted in a report that Oracle's CDS has once again become a key instrument for hedging AI financing risks. This reflects not only the company's own financial fundamentals but also investors' collective anxiety about overall AI capital spending, the execution progress of OpenAI-related projects, and the outlook for data center investments.

As Oracle continues to expand its data center construction and leasing footprint, the market is closely watching whether the company will take on further debt.

S&P Global downgraded Oracle's credit rating to BBB- earlier this month, just one notch above junk status.

Despite this, Oracle's management remains confident in its AI strategy, having deepened its collaboration with OpenAI in recent years and partnered with Meta and NVIDIA (NVDA-US) to advance AI cloud infrastructure.

Analysts warn that rising borrowing costs for tech firms will inevitably impact future funding for large-scale AI projects.

According to sources, Meta is currently raising funds for its Texas data center project, with a total investment of approximately $12 billion. The pricing for this financing is expected to be finalized as early as next week.

Reports suggest the financing rate for this deal will be higher than Meta's previous similar projects, indicating that investors are not only demanding higher risk premiums but are also scrutinizing more rigorously whether AI infrastructure investments can generate commensurate tangible returns.