AI debt tsunami combined with oil price shock, technology bonds suffer “multiple blows” and comprehensive collapse

According to Zhihui Finance APP, concerns over the rapidly expanding debt driven by the market's fervor for artificial intelligence investments have resurfaced, compounded by escalating conflicts in the Middle East, leading to a collective decline in the bonds of several major US tech companies on Thursday.

As oil prices soared above $100 per barrel, inflation fears intensified, and long-term Treasury yields climbed accordingly, further raising financing costs for companies that have already invested hundreds of billions of dollars in AI infrastructure.

Google’s parent company, Alphabet Inc. (GOOGL.US), worsened the decline after posting its quarterly earnings report late Wednesday—the company raised its full-year capital expenditure outlook, indicating that the wave of new debt issuance to support the investment frenzy is likely to continue.

Selling pressure pushed the yield on Alphabet’s 5.5% bond due 2046 up by about 9 basis points to 6.11%, widening the spread with the highest-rated benchmark to approximately 91 basis points, an increase of 6 basis points from Wednesday.

Another key data center builder, Oracle Corp. (ORCL.US), saw yields on some of its bonds due in 2030 jump by 17 basis points to around 6.09%. Meanwhile, investors have been driving up the price of credit default swaps (CDS) on the debts of Microsoft, Amazon, and others, reflecting mounting risk concerns.

Tony Trzcinka, portfolio manager at Impax Asset Management, commented: “The market is under triple pressure from AI capital expenditure anxiety, oil price shocks, and interest rate repricing.”

The bond market’s sharp volatility was accompanied by a broad sell-off in equities, with the Nasdaq 100 index closing down nearly 2% for the day, and the “Magnificent Seven” tech giants posting their biggest single-day drop since the tariff panic of April 2025.

The massive borrowing for AI investments—already totaling about $350 billion this year—has imposed persistent strain on the bond market, with signs emerging that investors are having trouble absorbing the flood of new debt. At the same time, there is widespread skepticism over whether AI can generate sufficient profits to cover such high costs.

Another sign of rising risk aversion: according to LSEG Lipper data, investors withdrew $7.1 billion in cash from US investment-grade bond funds for the week ended Wednesday, marking the largest weekly outflow since the onset of the COVID-19 pandemic in April 2020.

Mark Clegg, senior fixed income trader at Allspring Global Investments, noted: “The tech sector was once a safe haven for investors, but now the largest companies are surpassing the six biggest banks, becoming the largest issuers in the investment-grade market. Even rumors of another $20 billion new bond issue cause spreads across the sector to widen. This is supply fatigue, and it’s intensifying week by week.”

There are still large-scale issuance plans ahead. BlackRock is seeking to issue over $12 billion in bonds to finance Meta Platforms Inc.’s data center project in El Paso, Texas. Barclays has also raised its full-year forecast for US investment-grade bond issuance from $1.6 trillion to $1.9 trillion to reflect the AI-driven surge in debt.

John Lloyd, Head of Global Multi-Sector Credit and portfolio manager at Janus Henderson Investors, stated: “The market is becoming acutely aware that there are no signs of supply slowing down in any asset class.”