The tech world is abuzz with anticipation for potential IPOs from industry titans like SpaceX, OpenAI, and Anthropic. However, the current financial landscape for technology companies isn’t defined by new stock listings, but rather by a significant surge in debt issuance. The four dominant hyperscalers – Alphabet, Amazon, Meta, and Microsoft – are collectively projected to invest close to $700 billion this year in capital expenditures and finance leases to bolster their artificial intelligence infrastructure, driven by unprecedented demand for computing power.
To fund these ambitious AI buildouts, these tech behemoths are increasingly turning to the debt markets. This trend raises concerns about a potential AI bubble and the ripple effects of contagion should cash-burning startups like OpenAI and Anthropic falter and scale back their infrastructure spending.
Analysts at UBS project that global tech and AI-related debt issuance, which more than doubled to $710 billion last year, could escalate to a staggering $990 billion in 2026. Morgan Stanley further highlights a projected $1.5 trillion financing gap for AI development, with credit expected to fill a substantial portion of this need as companies find it increasingly difficult to self-fund their capital expenditures.
Chris White, CEO of data and research firm BondCliQ, described the corporate debt market as having experienced a “monumental” expansion, leading to a “massive supply now in the debt markets.”
The largest corporate debt offerings this year have come from Oracle and Alphabet. Oracle announced plans in early February to raise between $45 billion and $50 billion to expand its AI capacity, swiftly securing $25 billion in high-grade debt. Alphabet followed suit, increasing its bond offering size to over $30 billion, building upon a previous $25 billion debt sale in November.
Other major tech players are signaling their intentions to tap into the debt markets as well. Amazon recently filed a mixed shelf registration, indicating potential offerings of both debt and equity. Meta’s CFO, Susan Li, stated on the company’s earnings call that they will explore opportunities for “prudent amounts of cost-efficient external financing,” potentially leading to a positive net debt balance. Tesla’s CFO, Vaibhav Taneja, also noted that the electric vehicle maker might seek outside funding, including debt, to support its infrastructure expansion.
While the debt markets are robust, the IPO front remains relatively quiet. This year has seen no IPO filings from prominent U.S. tech companies, with much of the attention focused on Elon Musk’s potential plans for SpaceX following its merger with AI startup xAI, which he claims is now valued at $1.25 trillion. Reports suggest SpaceX might target a mid-2026 IPO, though some industry observers speculate Musk could instead merge it with Tesla. For OpenAI and Anthropic, while public debuts are reportedly in the long-term plans, no concrete timelines have been established. Goldman Sachs analysts anticipate around 120 IPOs this year, raising $160 billion, a notable increase from the previous year.
Lise Buyer, an advisor to pre-IPO companies at Class V Group, observes a subdued tech IPO market. Factors such as public market volatility, particularly concerning software and its AI-related vulnerabilities, geopolitical uncertainties, and a soft employment landscape are contributing to venture-backed startups remaining on the sidelines. “It’s not that appetizing out there right now,” Buyer commented, adding that while conditions have improved from the past few years, a surge in IPOs is unlikely this year. This is a concern for venture capitalists who rely on a healthy IPO market to satisfy their limited partners and secure future investments.
Alphabet’s recent debt offerings have demonstrated strong investor appetite, at least for now. The bonds, with varying maturity dates, are yielding slightly higher than comparable U.S. Treasuries, indicating modest risk premiums for investors. In its U.S. bond sale, Alphabet priced its 2029 notes at a 3.7% yield and its 2031 notes at 4.1%. John Lloyd, global head of multi-sector credit at Janus Henderson Investors, noted that historically tight spreads across the investment-grade landscape make it a challenging investment. While not concerned about ratings downgrades or company fundamentals, Lloyd expressed a preference for higher-yield debt from newer tech entrants and converted Bitcoin miners now focused on AI. Alphabet’s success in the U.S. was followed by a European bond sale of approximately $11 billion, suggesting demand for its debt extends beyond Wall Street.
The substantial influx of debt from a concentrated group of tech giants presents a unique challenge for corporate bond indexes, mirroring the concentration seen in equity benchmarks. Tech companies now constitute about 9% of investment-grade corporate debt indexes, a figure expected to rise to the mid-to-high teens. Dave Harrison Smith, chief investment officer at Bailard, views this concentration as both an “opportunity and a risk,” acknowledging the profitability and investment flexibility of these companies, but also the “eye-popping” capital requirements.
This increased supply of debt also poses a risk of driving up borrowing costs for other companies. White of BondCliQ suggests that a flood of debt from top tech firms will likely compel investors to demand higher yields from other issuers, leading to lower bond prices and consequently higher yields. While Alphabet’s recent offering was reportedly oversubscribed, White cautioned that prolonged high supply could eventually dampen demand. For borrowers, this translates to a higher cost of capital, impacting profits. Companies that will need to access the debt markets again in the coming years may face significantly higher interest rates, increasing their debt servicing costs. This could have a broad impact, affecting industries from automakers to banks.
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