Technology companies leading the development of artificial intelligence (AI) are borrowing record sums in bond markets to fund expansion, with overall AI-related debt in 2026 expected to approach $570 billion, according to Morgan Stanley.
This surge in borrowing represents a significant shift. Traditionally, tech giants such as Alphabet, Amazon, Microsoft, and Meta generated more cash than they required and used bond markets sparingly. Yet the build-out of AI infrastructure, including data centres and research, now requires capital spending that surpasses operating cash flow for many of these firms. As a result, they have turned to issuing corporate bonds in multiple currencies, including euros, sterling, Swiss francs, and yen, to source the necessary funding.
One notable example was Alphabet’s sterling 100-year bond issued in February, marking the first technology sector century bond since Motorola’s 1997 issue. Though ultra-long corporate debt is more commonly associated with governments or large institutions, this bond attracted demand roughly ten times the supply offered, reflecting investor confidence in the firm’s credit quality despite the longevity of the issuance.
Large institutional investors, especially pension funds, life insurers, and endowments, are the primary buyers of this debt. Such investors seek stable income streams to meet long-term liabilities, making ultra-long bonds a natural fit. However, passive bond funds tracking broad investment-grade indexes now comprise an increasing share of AI-linked corporate debt, meaning ordinary savers and pension holders may have more exposure to this concentrated technology borrowing than realised.
As these tech companies add more debt, their weight in benchmark bond indexes rises, compelling index funds to increase their holdings to match. Consequently, pension portfolios and other large fixed-income funds end up holding a growing portion of AI-related corporate bonds, even where no direct selection has been made. While for the individual investor this may be a small fraction, the aggregate allocation is substantial and increasing.
This high level of borrowing concentrated in a handful of companies introduces a risk premium to the wider bond market. Researchers from the Federal Reserve Bank of Dallas have observed that the volume of financing required for AI data centres could exert upward pressure on interest rates for long-term debt, potentially affecting borrowing costs beyond the tech sector, including sectors such as housing.
Despite the scale of debt accumulation, market sentiment among investors remains relatively calm. The major technology firms’ strong credit ratings and healthy cash generation underpin confidence in their ability to service this debt. According to Moody’s, contracted future revenues across leading cloud and AI companies stand at roughly $1.7 trillion, underscoring expectations of sustained demand.
Nonetheless, credit rating agencies have issued cautions. Moody’s notes that investments in AI infrastructure are currently outpacing corresponding revenue growth, signalling that financial gains may be uneven and subject to future risk. They also flag substantial off-balance sheet lease commitments by these firms and potential refinancing challenges within the broader private credit market, which underpins some of the debt.
S&P Global Ratings has highlighted the concentration of borrowing among a small number of companies, which amplifies risk exposure for funds holding these bonds. As pension schemes and insurers dominate the investor base for ultra-long debt, they are effectively placing a sizeable bet on the AI sector’s future success.
From the perspective of savers, the proliferation of AI-linked corporate bonds in fixed-income portfolios underlines the need for awareness of portfolio composition. While these bonds offer yield slightly above government debt and rest on strong corporate balance sheets, the exposure to a single industry’s fortunes has increased notably.
In sum, the transformation of tech companies into major bond issuers financing AI growth presents both opportunities and concentration risks for long-term investors. As this financing chapter unfolds, market participants and pension holders alike should monitor exposures reflecting this evolving facet of the bond market.
Ultimately, heavy AI sector borrowing brings a new dynamic to pension funds and bond portfolios, reflecting a confidence in the technology’s future within a framework that demands close attention to the broader implications for market stability and investor risk.
