Debt Leverage in the AI Frenzy - The "Perfect Formula" for the Next Financial Storm?

The enormous capital demand for artificial intelligence infrastructure construction is deeply binding with the global financial system through an increasingly large debt market.

On the 19th, StockMarket.News posted on X, believing that the core driving force behind this trend is the rapidly expanding capital expenditures of tech giants. Taking Amazon as an example, its capital expenditures surged 75% year-on-year, approaching the level of the company's operating cash flow. Faced with such a huge funding gap, traditional equity financing has become difficult to sustain, forcing companies to turn to the bond market and private credit for support.

The market's response has been extremely enthusiastic. Amazon's recent $15 billion bond issuance attracted subscription demand of up to $80 billion, demonstrating institutional investors' extreme "thirst" for yields in the current environment of high valuations, low interest rates, and fierce competition. Pension funds, mutual funds, and insurance companies are becoming the backbone of this financing wave, allocating large amounts of capital to AI-related debt instruments, thereby closely linking the savings of millions of ordinary investors with the future of the tech industry.

This model is raising concerns in the market about risk transmission. Analysts believe that this practice of broadly dispersing high-leverage, concentrated industry bets throughout the financial system bears similarities to the mortgage market before the 2008 financial crisis. Once the investment logic of the underlying asset, "AI infrastructure," shows cracks, the consequences will extend far beyond impacting Silicon Valley.

Capital Demand Breeds Debt Dependence

The essence of the AI race is a battle of capital consumption. To build computing power infrastructure, tech companies are investing unprecedented amounts of money. According to a previous article by Wall Street Insight, Bank of America stated that the total issuance of the five major cloud computing giants in the U.S. (Amazon, Google, Meta, Microsoft, Oracle) has reached an astonishing $121 billion so far this year, more than four times the average of $28 billion over the past five years. This torrent of bond supply has significantly impacted the market, with cloud giants' bond spreads widening considerably, including a 48 basis point increase for Oracle, and 15 and 10 basis point increases for Meta and Google, respectively, clearly underperforming the overall investment-grade bond index.

At the same time, Bank of America believes that the expected supply will remain around $100 billion in 2026 and will not accelerate further.

Market analysis predicts that between 2025 and 2028 alone, AI infrastructure projects are expected to require approximately $800 billion in private credit funding, which accounts for one-third of the expected total infrastructure investment in the field during the same period.

In this context, debt has become an inevitable choice. When a company's capital expenditure scale matches or even exceeds its own cash-generating ability (i.e., operating cash flow), external debt financing shifts from an option to a necessity. Amazon is not an isolated case; tech giants like Meta and Oracle are also constructing similar financing arrangements, often packaging and layering debt through off-balance-sheet tools and asset-backed securities to sell to investors with different risk appetites Strong financing demand coincides perfectly with institutional investors' "yield dilemma." Against the backdrop of high valuations in global stock markets and limited returns from traditional fixed-income products, debt instruments linked to the high-growth AI industry provide an attractive alternative.

The oversubscription of Amazon bonds is a microcosm of this. Huge demand has driven such transactions to market quickly, with pricing often further compressed overnight, allowing bond managers to achieve immediate paper profits even before the relevant infrastructure is built. This pursuit of yield compels managers of long-term capital, such as pension funds and insurance companies, to consider AI-related debt as a significant component of their investment portfolios.

From Tech Giants to Pensions: How is Risk Transmitted?

The core risk of this financing structure lies in its broad transmissibility. Unlike equity financing limited to a few specialized investors, these debts are widely distributed across the financial system through the portfolios of pensions, mutual funds, and insurance companies.

This means that if negative events occur in the AI sector, such as growth falling short of expectations, technological routes being discredited, or project defaults, leading to a rapid repricing of related debt assets, the impact will quickly spread. Forced sell-offs could trigger a chain reaction, causing asset prices across industries to decline, creating a typical "contagion" effect. Under this mechanism, risks originating from a single tech company could ultimately evolve into a systemic crisis impacting the entire financial system.

Market observers warn that the current scenario bears unsettling similarities to the mortgage market before the 2008 financial crisis. At that time, financial institutions widely chased high yields from financial products packaged from subprime mortgages, assuming the stability of their underlying assets. However, high leverage and a singular focus on the real estate market ultimately led to disaster.

Today, the market seems to have fallen into a similar logic: everyone is chasing yield and assuming the growth prospects of AI are stable and reliable. Yet, its underlying structure is inherently risky due to high leverage and concentrated investments in a single track. If the investment thesis of "AI infrastructure" shows cracks, the shockwaves will not be limited to tech companies or banks but will directly affect every retail investor and retiree associated with institutional portfolios