Record-Breaking AI-Related Debt Issuance in 2025
Authors & Contributors
Theodore Bair Jr., CFA
Bryan Steele
As cloud infrastructure providers move toward AI and data center expansion, their issuance of roughly $121 billion in new debt this year has caused investors to reassess the balance between risk and reward.
Overview of the 2025 Debt Surge
Hyperscalers – massive cloud infrastructure providers such as Amazon, Alphabet/Google, Meta, Microsoft, and Oracle1—have issued roughly $121 billion in new debt so far in 2025, with over $90 billion raised in the past three months alone. This borrowing spree has been ignited by massive expansion plans for cloud infrastructure: construction of large-scale data centers stocked with advanced servers and cutting-edge graphics processing units (GPUs), intended to satisfy the burgeoning demand for artificial intelligence (AI). These Capital Expenditure (CapEx) needs increasingly exceed expected operating cash flows, pushing firms to tap bond markets to fund growth at unprecedented speed and scale.
Impact on Credit Markets
The borrowing surge has widened credit spreads, notably for Oracle and Meta, with Alphabet, Amazon, and Microsoft widening to a lesser degree. Consequently, investors are increasingly turning to credit default swaps (CDS) to hedge against the downside risks associated with AI investments. Since June, the cost of insuring hyperscaler debt through CDS has increased, reflecting heightened credit risk and increased sensitivity to the execution of substantial capital expenditure plans. As issuance accelerates and the sector's financing activities expand, we anticipate that the need to hedge exposure to AI-related investments and long-term technological liabilities will increase.
Hyperscaler 5-Year CDS Comparison
Potential for Future Debt Issuance
Wall Street firms are highlighting expectations for a continued surge in technology sector debt issuance. UBS analysts foresee as much as $900 billion in new debt from global companies in 2026. Further out, Morgan Stanley and JP Morgan project the technology sector may need to issue as much as $1.5 trillion in new debt over the next few years to finance AI and data center infrastructure construction.
Risks Associated with Hyperscaler Debt Strategies
A potential $1.5 trillion wave of AI-related bonds could strain corporate bond markets, widening spreads and heightening volatility. Parallels to the dot-com and telecom buildouts suggest risk if infrastructure returns lag expectations. An AI “CapEx bust” could pressure cash flows, trigger downgrades, and weigh on the broader economy given its growing reliance on AI-driven investment.
Mitigating Risks through Index Funds and ETFs
Passive fixed income strategies mitigate concentration through market-cap weighting with single-issuer caps and sector limits, tempering exposure even as technology issuance grows. This reduces idiosyncratic default impact and limits sector overweighting.
Investment-grade indices enforce ratings thresholds and fallen-angel rules, removing bonds downgraded below IG at scheduled rebalances, constraining exposure to weakening credits and helping maintain quality.
Routine monthly or quarterly rebalancing adds eligible new issues and removes matured or noncompliant bonds, preserving methodological discipline and preventing issuer or sector drift amid shifting issuance patterns.
ETF creation/redemption supports secondary market liquidity and helps align prices with net asset value during periods of concentrated issuance, aiding orderly absorption of large supply and facilitating tactical portfolio adjustments.
Investors can target duration bands or maturity ladders to manage interest rate and refinancing risk inherent in long-lived infrastructure financing, balancing carry against extension risk.
Navigating Opportunities and Risks
The aggressive debt issuance strategies of major hyperscalers highlight both opportunities and risks related to AI and data center expansion. While we believe infrastructure investments are essential for technological progress and economic growth, increasing leverage and the possibility of market instability underscore the need for careful risk management. Companies with strong balance sheets may be better equipped to manage financial turbulence, but sector-wide challenges could still affect even the most resilient firms. As the industry moves through this transformative period, prudent debt management and diversified investment strategies will likely be crucial for ensuring long-term stability and sustainable growth.
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