Summary
Highlights
Despite headlines obsessing over stock market valuations, the real stress test for the AI boom is occurring in the bond market. Big Tech companies are borrowing heavily to fund significant infrastructure expansion, a move currently perceived by stock traders as standard financial engineering.
Bond market indicators demonstrate waning investor enthusiasm. Coverage ratios for tech debt have dropped significantly, while companies like Amazon are forced to pay higher yields to attract buyers. Oracle's credit default swap prices hitting 18-year highs and SpaceX's debt trading at junk levels serve as clear warning signals that the bond market is pricing risk that stocks are ignoring.
AI-linked debt issuance has seen explosive growth, hitting nearly $489 billion early in the year. Much of the required capital is shifting toward private credit and off-balance sheet vehicles, making it difficult for the average investor to track. This parallels the late 90s telecom bubble, where massive infrastructure spending preceded proven long-term demand.
With an estimated $2.9 trillion needed for data centers by 2028 and a significant funding gap, the easy money phase for AI infrastructure is ending. If credit markets continue to tighten, hyperscalers may be forced to scale back their spending to maintain credit ratings, potentially undermining the very catalyst that has driven the record-breaking stock market growth.