Credit and AI: A Dangerous Liaison

The end of the road for First Brands, the US automotive parts supplier that made headlines in late 2025 after seeking protection under US bankruptcy law. The company, which has since entered liquidation, had raised fears of a domino effect across the private debt market, its main source of financing. A year later, investors’ attention has shifted to another potential source of risk: the heavy reliance on credit markets by AI players. So much so that KKR has referred to “an unusually concentrated investment cycle”. Such a warning from one of Wall Street’s leading investment firms warrants a closer look at the situation.

The amounts of capital being invested by the hyperscalers are staggering: consensus estimates point to $806 billion this year and $1.104 trillion in 2027, up from “just” $237 billion in 2024. Unsurprisingly, as the cash generation of these five players has failed to keep pace with their spending, their balance sheets have become the adjustment variable.

US investment bank Goldman Sachs has estimated the volume of bond issuance already undertaken by these five companies, as well as the amount expected going forward. Here too, the figures are eye-watering: following $108 billion in gross issuance in 2025, analysts expect $250 billion this year and $420 billion in 2027*. Beyond the tech sector, they estimate that companies associated with the AI theme will raise $578 billion this year, accounting for 12% of the total notional amount outstanding in the US Investment Grade market**.

The hyperscalers are not active solely in their domestic market. Their financing needs are so substantial that they are increasingly tapping European, Australian and Swiss markets. The situation is particularly striking in Switzerland, given the relatively small size of its market: more than a quarter of this year’s issuance is AI-related, forcing treasurers at domestic companies to adapt their usual practices to avoid competing with these players.

This issuance frenzy is inevitably pushing up the borrowing rates demanded by investors. The yields paid by major US tech companies have continued to rise this year. One example is Alphabet, Google’s parent company, which offered a coupon close to 7% on a 20-year Australian dollar bond issued in late August, with a spread*** of 180 basis points at issuance, despite its AA+ rating from S&P Global.

More broadly, Goldman Sachs analysts estimate that AI-related companies rated Investment Grade pay a premium of around 20 basis points over their peers in the US credit market. This may help explain why Amazon is currently exploring the possibility of selling a special-purpose vehicle backed by some of Nvidia’s most advanced chips to investors, in a transaction worth $8 billion, structured as a sale-and-leaseback***.

While both US and European credit markets had remained resilient until late August, rising interest-rate volatility***** has finally taken its toll on spreads, which have widened by 20 basis points over the past month in the European Investment Grade segment, reaching 100 basis points. More seasoned investors are well aware of the correlation between these two market variables. They must also contend with a reduction in inflows into the corporate bond asset class over the past few weeks.

This decline in inflows may be explained by the fierce competition for capital across bond markets, as governments are also set to issue significant amounts of debt. Following the recent move in the so-called “risk-free” segment of the market, the 4.3% yield offered by European Investment Grade credit may look attractive to traditional directional carry strategies. However, the current spread level remains below the five-year average of 120 basis points and well short of the highs reached in September 2022, at 230 basis points. This leaves investors exposed to the risk of spread widening, which only flexible credit strategies are likely to be able to absorb…

* Amazon, Google, Meta, Microsoft and Oracle.

** Corporate credit rated as investment grade.

*** The yield differential between a corporate bond and a risk-free benchmark.

**** A sale-and-leaseback transaction.

***** MOVE Index at 101.

Pierre Pincemaille, General Secretary of Investment at DNCA. This article was finalised in October 9th, 2026.

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