How the bond market is handling AI risks

Zachary Griffiths (0:01)

NPR.

Ricky Mulvey (0:06)

This is The Indicator from Planet Money. I'm Ricky Mulvey.

Wailin Wong (0:09)

And I'm Wayland Wong. If you own stocks in the US, it's very likely that your money is tied up with mega tech companies. That's because the 10 biggest stocks in the S&P 500 are names like Microsoft, Nvidia, and Amazon.

Ricky Mulvey (0:22)

And when these stocks dip, like they did this week on worries about AI spending, they take the market with them.

Wailin Wong (0:28)

These same companies are starting to reshape the bond market. Tech giants are borrowing hundreds of billions of dollars to finance AI data centers. If your 401k has money invested in the US bond fund, your savings could be fueling the build out. A build out, by the way, that is a dominant force in the economy right now and affecting all of us.

Ricky Mulvey (0:47)

This boom in data centers could lead to both productivity and financial gains, but it also exposes new risks and it all comes back to bonds. Today, we look at how the bond markets are digesting this glut of AI-related bonds, and we pose two questions that help us assess whether all of this borrowing is sustainable.

Wailin Wong (1:16)

Data centers are all over the news these days. They are flashpoints and local debates about what should be built in communities.

Ricky Mulvey (1:23)

Now, if you're one of those people who don't want a data center in their backyard, and that's the majority of Americans, you might want this bond-fueled buildout stopped in its tracks.

Wailin Wong (1:34)

Then, of course, if you're rooting for the stock market to keep going up, you need those data centers to power the hopes and dreams and profits of the tech giants. But enough about stocks, I want to talk about bonds.

Ricky Mulvey (1:45)

Again, why?

Wailin Wong (1:46)

I always want to talk about bonds, because the bond market is like this thing that people never think about, and yet bonds have financed so much of human history. Wars, bridges, everything in between.

Ricky Mulvey (1:58)

That's it? Just wars and bridges?

Wailin Wong (1:59)

Yeah, just two things, wars and bridges, but so many bridges, so many beautiful bridges. Ricky, airports?

Ricky Mulvey (2:05)

Airports are good too, but they're not as volatile. They don't go up-y down-y as much as stocks, but all right, I'll let you have it.

Wailin Wong (2:11)

And right now, bonds are funding data centers.

Zachary Griffiths (2:14)

Bonds are interesting. That's what we're always saying to various kinds of receptivity.

Wailin Wong (2:22)

This is fellow bond geek Zachary Griffiths. He works at an independent research firm called Credit Sites. His specialty is US investment-grade debt that refers to safe and highly rated bonds. US treasuries are investment-grade, and so are bonds from megatech companies like Alphabet, Amazon, Meta, and Microsoft.

Ricky Mulvey (2:41)

These companies, along with Oracle, are considered the main hyperscalers. This is a term we didn't really use that much until a few years ago, and now it's getting thrown around all the time.

Wailin Wong (2:51)

Yeah, it's come about because it refers to corporations that run huge data centers. These hulking structures take a lot of money to build, and the hyperscalers have a lot of cash. Still, it's not enough for the kind of massive infrastructure projects they're planning. So they're getting ahead of their future spending needs by borrowing money now.

Ricky Mulvey (3:10)

And they're not just waiting gently into the bond market. According to Vanguard, the five hyperscalers sold more than $90 billion in bonds last year. And they've already sold more than $130 billion so far in 2026

Zachary says these hyperscalers have made a splashy entrance.

Zachary Griffiths (3:32)

For the corporate bond market for a buildout, these numbers are truly staggering.

Ricky Mulvey (3:37)

He says the hyperscalers are doing deals where they sell $25 billion of new bonds in one go. That's a big shift from a few years ago, when these companies weren't very active in the bond markets.

Zachary Griffiths (3:50)

If you go back just a few years, some of these names that are now at the very top of the issuance or debt outstanding list wouldn't have showed up in the top 10 or 20

Wailin Wong (4:00)

And remember, most of the hyperscalers are considered very safe and creditworthy. The bonds they're selling are now competing with US treasuries for investor dollars. That's helping push up yields for treasuries. We talked about that on a recent episode.

Ricky Mulvey (4:13)

But investors like hedge funds, pension funds, and insurance companies, they don't have unlimited dollars. So we wanted to know, is there enough demand out there for all of these new AI-related bonds? That's our first question.