AI’s Debt-Fuelled Expansion Spills Into the Bond Market

Artificial intelligence companies are increasingly turning to debt markets to finance their rapid expansion, marking a shift from their traditional reliance on equity funding. 
 
The recent pullback in global stock markets—driven by stretched valuations and concerns over an AI-driven bubble—has coincided with a surge in bond issuance by AI-focused firms, extending investor unease from equities into the corporate credit space.
 
This trend became evident in late November, when a wave of new AI-related debt triggered a brief bout of volatility. 
 
Corporate credit spreads widened as investors reassessed risks linked to rising leverage, sustained cash burn, and the long gestation periods required for AI investments to translate into stable revenues. 
 
For a moment, optimism around AI’s transformative promise gave way to caution in fixed-income markets.
 
Since then, conditions have stabilised. 
 
Equity markets have rebounded, credit spreads have narrowed, and appetite for high-quality corporate bonds has returned. 
 
Confidence has been supported by the strong balance sheets of large technology firms and expectations that AI will drive long-term productivity and economic gains.
 
Yet the broader shift is far from over. 
 
AI companies are expected to continue issuing bonds to fund capital-intensive requirements such as data centres, specialised chips, cloud infrastructure, and energy capacity. 
 
If borrowing accelerates further, it could alter credit dynamics within the technology sector and pose wider questions about financial stability, keeping investors on alert as the AI boom evolves.