The Bonds Behind the Artificial Intelligence (AI) Boom
After years of funding capital expenditures (capex) with their deep cash reserves, some of the biggest technology companies are borrowing once again—this time to finance large-scale artificial intelligence (AI) infrastructure, including data centers, power sources, and other supporting technologies.
For example, four major companies leading this AI "hyperscaling" trend—Alphabet, Amazon, Meta, and Oracle—issued $223 billion in U.S. corporate bonds as of late August,1 up from roughly $108 billion in 2025 and just $33 billion in 2020.
Rising expectations for spending by large tech companies for the buildout of AI infrastructure have led to countless headlines. "The amount of AI-related bond issuance is astounding—and raises some big questions," says Collin Martin, CFA®, head of fixed income research and strategy at the Schwab Center for Financial Research. Namely, it's unclear how such issuance squares with the real pressures facing widespread AI adoption, including:
- Monetization: Perhaps the biggest question is whether companies' AI investments will provide enough income to repay those debts over time. Corporate adoption is still in the early stages, and boardroom enthusiasm doesn't necessarily translate to revenue or other measurable earnings impact.
- Public opposition: Resistance to the construction of data centers required to support AI is growing. New York state, for example, issued a one-year moratorium on new, large data centers in July, citing the need for a better understanding of the environmental impacts of such facilities.
- Resource capacity: There's also the possibility that electricity grids won't be able to supply the additional power needed by AI data centers.
Reflecting these pressures, tech-bond credit spreads—the yield premiums investors demand over U.S. Treasury bonds—have widened significantly over the past year. Historically, tech bonds have enjoyed lower credit spreads than the rest of the investment-grade market due to their strong balance sheets, but these added risks have pushed yields higher—so much so that in 2026 tech spreads surpassed the rest of the market for the first time in years.
Riskier business
The recent widening of credit spreads for investment-grade tech bonds versus the broader market may be a signal that tech investors expect compensation for taking on higher perceived risk.
Source: Schwab Center for Financial Research with data from Bloomberg.
Data from 01/21/2021 through 08/24/2026. Investment-grade technology bonds are represented by the Bloomberg U.S. Investment Grade Technology Index, and the broader investment-grade bond market is represented by the Bloomberg U.S. Corporate Bond Index. Indexes are unmanaged, do not incur management fees, costs, and expenses and cannot be invested in directly. For more information on indexes, please see schwab.com/indexdefinitions. For illustrative purposes only. Not intended to be reflective of results you can expect to achieve and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment. Illustration should not be used as a basis for any investment decision. Past performance is no guarantee of future results.
Of course, because of their market dominance, large cash flows, and revenue outside of AI, the default risk for hyperscalers appears to be relatively low right now. But if the spreads on tech bonds continue to rise, their prices will likely fall in secondary markets, meaning bondholders will fetch less in return if they sell before maturity and bond fund holders might see their fund values decline.
"Investors should make sure the bonds they're holding match their risk tolerance—and that they spread their risk across fixed income investments just as they do with their equity allocations," Collin says.
1Schwab Center for Financial Research with Bloomberg data. New issuance for 2020 and 2025 represents each calendar year; 2026 issuance is from 01/01/2026 through 08/24/2026.
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