AI-related debt sells off sharply as Amazon borrows another $25 billion

By Joy Wiltermuth

More than $460 billion in outstanding debt has been issued in recent years by six major companies in the AI race, according to BondCliQ

AI debt is selling off sharply Tuesday as Amazon brings raises another $25 billion

Bonds financing the massive artificial-intelligence buildout were hit hard by selling on Tuesday, as Amazon.com set out to borrow another $25 billion in new debt.

"Most of the weakness in hyperscaler bonds today reflects investors raising cash to participate in Amazon's new issue, not a change in the underlying credit story," said John Lloyd, global head of multisector credit at Janus Henderson.

"That said, investors are increasingly questioning how much additional debt the sector will need to fund AI-infrastructure spending over the coming years," he added in emailed comments.

Bloomberg first reported on the weakness in AI debt tied to the new Amazon (AMZN) deal, which was initially pitched as an eight-part U.S. bond financing, according to deal documents. The company's bonds, as well as others from the Big Tech "hyperscalers" financing the AI buildout, were being swept up in the bond rout.

More than $460 billion in outstanding debt has been issued in recent years by six major companies in the AI race - Amazon, Microsoft (MSFT), Alphabet (GOOGL) (GOOG), Meta Platforms (META), Oracle (ORCL) and Nvidia (NVDA) - with about $100 billion of the total emerging this year, according to a tally from BondCliQ.

The spread on Meta's 6.3% coupon bonds due May 2056 widened by about 8 basis points on Tuesday, according to MarketAxess. Amazon's 5.95% coupon bonds due March 2066 widened by about 14 basis points.

Spreads on highly rated corporate bonds typically move by only a few basis points on a typical day. They can widen more sharply when investors suddenly demand more compensation to trade in a specific name or industry. AI-related debt has been trading wider than the broader U.S. investment-grade corporate-bond market in recent months.

SpaceX (SPCX) joined the AI borrowing spree in June with a $25 billion bond deal, which came right on the heels of the company's historic IPO. Those bonds have also have been swept up by selling.

"Portfolios are already heavy in hyperscaler exposure, making it relatively easy to source existing bonds in the secondary market," said Lloyd at Janus. "As a result, new issues need to come with meaningful concessions to compensate investors for adding incremental exposure."

-Joy Wiltermuth

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07-07-26 1835ET