The massive wave of financing for artificial intelligence infrastructure is pushing up borrowing needs for major technology companies, leading to an unusual "indigestion" in the U.S. investment-grade bond market.
This year, tech behemoths including NVIDIA, SpaceX, and Amazon have completed bond deals totaling hundreds of billions of dollars. However, almost without exception, these new bonds have fallen below their issue price on the first day of trading, with secondary market performance weakening steadily. In response to cooling demand, underwriters are adjusting their issuance strategies, including holding non-deal roadshows earlier, screening for long-term investors, and deliberately spacing out issuance schedules to relieve market supply pressure.
According to data compiled by Bloomberg, since the start of the year, Amazon, Alphabet, NVIDIA, Meta Platforms, Inc., Oracle, and SpaceX have collectively raised over $200 billion in the U.S. dollar investment-grade bond market. In contrast, high-grade tech companies had raised only about $13 billion in the same period last year.
Where to focus
John Servidea, global co-head of investment-grade financing at JPMorgan Chase, stated that the biggest hurdle for banks and issuers is the persistently weak performance in the secondary market. While the market can ultimately absorb these volumes, the scale and speed of issuance have indeed caused "indigestion."
New bonds frequently break, secondary market under continuous pressure
The surge in supply from the AI financing wave has clearly weighed on the performance of new bonds.
After SpaceX completed a $25 billion bond issuance in June, the new bonds quickly weakened. Traders attributed this mainly to fast-money accounts quickly taking profits after receiving allocations. In early July, Amazon issued $25 billion in bonds. The credit spread on its 10-year bonds widened by as much as 7 basis points within days of trading. Similarly, for NVIDIA's bonds of the same size, the 10-year portion saw its spread widen by about 5 basis points in the first week.
Bloomberg data shows that, under normal circumstances, about two-thirds of new U.S. investment-grade bonds see their credit spreads narrow within a few days of issuance. However, bonds from large tech companies have recently been bucking this trend, deviating significantly from historical patterns.
Faced with the persistently weak secondary market, underwriters have begun to proactively adjust their issuance strategies.
According to Bloomberg, some issuers are adding non-deal roadshows before formally launching a transaction. This allows them to test investor demand and acceptable pricing ranges in advance. Simultaneously, underwriting banks are also downplaying the issuance plans of large tech bonds, no longer including huge transactions in their weekly issuance forecasts. This is done to avoid prematurely revealing financing plans that could trigger market concern.
Mariya Entina, a portfolio manager at DoubleLine, noted that a bank preparing a $20 billion financing deal would not typically raise market expectations for the weekly issuance size. Doing so would not only expose its involvement in the project but might also encourage investors to reduce their risk exposure ahead of time.
Selecting long-term capital becomes a new strategy to stabilize new bonds
Beyond adjusting issuance schedules, underwriters are also placing greater emphasis on the investor base.
When BlackRock raised $12.5 billion in bonds for a Meta Platforms, Inc. data center project, the underwriters, JPMorgan Chase and Morgan Stanley, deliberately increased the allocation proportion for pension funds and insurance companies in the placement process, while reducing participation from short-term trading accounts.
This strategy proved effective. After the bond issuance was completed, the credit spreads of the new bonds quickly narrowed. Their secondary market performance was markedly better than the previous few large-scale tech financings. Although the subscription multiple was below the market average, the higher proportion of long-term capital helped stabilize bond prices.
However, issuers paid a higher cost for this. Reports indicate that BlackRock had to offer a higher issuance premium to attract long-term capital.
Meanwhile, a growing number of tech companies are proactively managing market expectations regarding their financing needs.
Alphabet recently stated that this bond issuance would be its last in the U.S. market for the year. It also offered additional yield concessions to boost demand. When Meta Platforms, Inc. completed a $25 billion financing in April, it clearly told investors it would not return to the bond market until at least the fourth quarter. According to sources familiar with the matter, this statement helped stabilize market demand at the time. Oracle, when issuing bonds in February this year, told investors it did not expect to return to the bond market in 2026.
The AI financing wave is not over, supply pressure may intensify further
Despite market fatigue, the demand for AI data center financing is still growing rapidly. According to Bloomberg, banks led by Morgan Stanley are assembling about $15 billion in debt financing for Anthropic's Texas data center project, which is backed by Alphabet's Google.
A report citing an anonymous banker estimates that after the U.S. Labor Day holiday (September 7th), hyper-scale cloud and data center operators will collectively launch an additional $50 billion to $60 billion in new financing needs. If some issuers had not voluntarily delayed their financing plans to allow the market to digest existing supply, this figure could have been even higher.
The supply pressure is also starting to spread to the high-yield bond market. Data center operator CoreWeave is increasingly turning to the leveraged loan market for financing. Separately, Goldman Sachs is in talks with investors about a roughly $5.4 billion financing package to support the QTS data center project, which is owned by Blackstone and related to Microsoft.
Even during the traditional off-season for issuance, the financing pace has not slowed significantly. Late last month, Equinix xScale completed a sterling bond issuance secured by two data centers in Slough, UK. The issuance locked in the spread directly, bypassing the usual initial price guidance process.
Facing a constant stream of supply, investors are adopting a cautious stance. Kshitij Sinha, a fixed-income fund manager at Canada Life Asset Management, noted that given the capital expenditure plans of every hyper-scale tech company, there is currently no urgency to increase allocations.
Comments