AI debt is flooding the bond market

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**Megan McCarty-Corino** (1:25)
What's going on with the AI bond binge? From American Public Media, this is Marketplace Tech. I'm Megan McCarty-Corino.
The big tech companies driving the AI boom are expected to spend more than $700 billion on data center infrastructure this year. And they're increasingly looking to debt to finance this spending spree. Amazon, Alphabet, Meta and Oracle have been issuing corporate bonds at a scale the industry has never seen. To explain what this means, we're joined by Julie Ask, a tech analyst at Ask Advisory.

**Julie Ask** (2:10)
What's happening right now is it feels like there's just insatiable demand for AI, or what we call these tokens or massive compute power.
When that comes and there isn't enough supply, then the CapEx amongst these hyperscalers has been growing dramatically, especially among the largest in the world. For example, if you look at Alphabet's CapEx for fiscal year 2023, it was closer to $32 billion.
For fiscal year 2025, it was already up to $91 billion, and that's looking to almost double for this year. Then you think about, well, why don't they just use their existing cash? If you look two to three, four years ago, the CapEx was probably a fraction, maybe half of their free cash flow, but now it's a multiple, so the numbers have gone up dramatically. So some of the original budgets that may have been in place even one to two years ago, oh, no longer gonna suffice. So these companies are looking to alternative plans. According to the Wall Street Journal, these large tech companies have already issued $244 billion in bonds just this year with Amazon, NVIDIA, and SpaceX releasing $75 billion of that just in the month of June.

**Megan McCarty-Corino** (3:22)
I think a lot of people are probably at least loosely aware of these companies' performance on the stock market. These are very valuable companies. The stock can also, though, be kind of volatile. What should we understand about what is different about the bond market?

**Julie Ask** (3:38)
So the bond market, typically just the 101, is that there's less risk than holding equity. So if something were to happen to one of these companies, the debt holders get paid first and then equity. I think the second thing that's important to know is building data centers and building infrastructure is a different business than most of these companies are in. If you look at the revenue at a company like Alphabet or Meta, it's primarily advertising. They're not accustomed to spending $30, $40, $50 billion in a year to build infrastructure.
The other thing about bonds and the length of the bonds that they're issuing is they're more in tune with the longevity of these physical assets.

**Megan McCarty-Corino** (4:22)
As you noted, this is an unusual position for these big tech firms to be in. What does it mean for them to now be such big bond issuers, to have to be paying attention to interest rates?

**Julie Ask** (4:37)
I think on one hand, and I think this is one of these things, Megan, where in some ways it's a fluid situation. As you mentioned, these tech companies have been doing really well for a lot of years, so their cost of capital is fairly low. It's not much higher than it would be for the US government. If the US government has bonds at 3.5%, these companies can issue it at 5%.
They are benefiting from having high credit scores and a relatively low cost of capital. However, they still need to pay attention to what the interest rates are, because for a number of different reasons, due to inflation and some volatility, the interest rates are starting to go up and the cost of the capital is beginning to creep up for some of these companies, because there's more uncertainty going on in the AI market. And really, how much demand is there when we're building assets that aren't going to be online for two, three, four, five years?