AI bond flood adds to market pressure

Wall Street is straining to absorb a flood of new bonds from tech companies funding their artificial intelligence investments, adding to the recent pressure in markets.

- Sam Goldfarb

Since the start of September, so-called AI hyperscalers Amazon.​com, Alphabet, Meta Platforms and Oracle have issued nearly $90 billion of investment-grade bonds, according to Dealogic, more than they had sold over the previous 40 months.

AI data-center developers like TeraWulf and Cipher Mining, both started as bitcoin miners, also have stormed the speculative-grade market, issuing more than $7 billion of those lower-rated bonds.

Companies were able to complete their sales. But some had to pay unexpectedly high interest rates. Prices of bonds from the companies have also been sliding a sign that investors were caught off guard by the sheer quantity of bonds entering the market and of growing concern about the worsening credit metrics of the businesses.

Stock investors, already nervous about the sky-high valuations of AI businesses, have taken note of the weakness in the bond market. Meanwhile, the cost of insuring those bonds using credit-default swaps also has climbed, with negative sentiments from different groups of investors feeding into each other.

"The markets are very interconnected now," said John Lloyd, global head of multisector credit at Janus Henderson Investors. "It will be hard for the credit markets to do well if AI stocks are selling off, and vice versa."

Investor enthusiasm about AI has been a powerful tailwind for markets in recent years. But the past few weeks have been tough, with the tech-heavy Nasdaq composite down 6.1% on the month.