Concerns over the AI bubble continue to escalate, leading to a sell-off of bonds from U.S. tech giants, with Oracle being the hardest hit
Investor concerns about AI spending by tech giants have spread to the bond market, leading to a sell-off of bonds from companies like Alphabet and Meta. According to Bank of America data, the yield spread on such bonds has widened to 0.78 percentage points, the highest level in months, indicating that market risk premiums are increasing. Oracle has been particularly hard hit, with some of its bond prices falling nearly 5% since mid-September, far exceeding the industry average
Market concerns about the massive investments of tech giants in the field of artificial intelligence are spreading from the stock market to the bond market, which has traditionally been seen as more stable.
Recently, there has been a sell-off of bonds from "hyperscale computing companies." A bond portfolio composed of companies such as Alphabet, Meta, Microsoft, and Oracle has seen its yield spread over risk-free U.S. Treasury bonds rise to 0.78 percentage points.
According to Bank of America data, this spread level is not only higher than the 0.5 percentage points in September but also the highest point since April of this year when Trump's tariff remarks triggered market turmoil. An expanding spread typically indicates that investors are demanding higher risk compensation, reflecting their increasing concerns about the credit risk of the bond issuers.
Massive Bond Issuance Raises Leverage Concerns
Behind the widening spread is the market's growing attention to the financing strategies of tech companies. Although these giants are cash-rich, they are issuing bonds at an unprecedented pace to fund AI infrastructure such as data centers.
JP Morgan noted in a report that these "hyperscale" companies collectively hold about $350 billion in cash and investments, yet they are still seeking substantial new debt in the credit market.
Recently, Meta, Alphabet, and Oracle have completed bond issuances at the level of tens of billions of dollars, with some bonds having maturities of up to 40 years. This has raised concerns among some investors that these companies may be turning to higher leverage levels.
Oracle Bonds Under Significant Pressure
In this round of sell-offs, Oracle's bonds have been particularly impacted. An index tracked by reports shows that since mid-September, the prices of some of Oracle's existing bonds have dropped nearly 5%, while the broader U.S. high-rated tech bond index has only seen a decline of about 1% during the same period.
Data shows that Oracle's long-term debt has reached approximately $96 billion. Rating agency Moody's has warned that Oracle's growth model relies on large commitments from a few AI companies, which poses significant risks.
However, some analysts believe that the bond sell-off following increased supply is a healthy market response. George Pearkes, a macro strategist at Bespoke Investment Group, stated, "We are still in the early stages of the AI debt cycle."
