Corporate bond issuance tied to artificial intelligence (AI) investment is mushrooming this year, led by hyperscalers—operators of massive data centers—including Amazon (AMZN), Microsoft (MSFT), Google parent Alphabet (GOOGL), Facebook parent Meta (META) and Oracle (ORCL). AI-related corporate bond issuance already exceeded 500 trillion won in the first half alone, and observers project the figure could reach as much as 870 trillion won by year-end. Even companies with stable cash cows are taking on astronomical debt to join the investment race, and Wall Street is watching the trend with a mix of anticipation and concern. Above all, news of the tech giants' bond issuances, combined with localized clashes between the United States and Iran, is preemptively pushing up bond market yields. The AI investment frenzy could also give the Federal Reserve—already weighing [HEADLINE]
Big Tech AI Bond Spree Lifts Yields, Sways Fed Policy
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This served as a backdrop for the decline in semiconductor-related stocks.
Of course, there is no shortage of counterarguments that Big Tech's bond volumes cannot be viewed as risky alone. This is also a factor behind Wall Street continuing to place heavy orders for Big Tech bond issues. Indeed, Microsoft's credit rating from Standard & Poor's (S&P) stands at 'AAA,' higher than the U.S. sovereign rating of 'AA+.' By S&P's measure, Alphabet is rated 'AA+,' Amazon 'AA,' Meta 'AA-' and Oracle 'BBB.' The Economist said on July 7, "The AI revolution is advancing at a ferocious pace, with winners turning into losers in an instant and then flipping back into winners," adding, "It is harder than ever to distinguish which companies will be able to repay in 10, 30, or 100 years." Market research firm SemiAnalysis dismissed market concerns in a July 3 report, saying, "Even after its entry into the cloud business, Meta's investment in data centers and AI computing will accelerate further, far from slowing down."
The corporate bond volumes pouring out of Big Tech are naturally having a considerable impact on market interest rates as well. Starting July 7, the yield on the 10-year U.S. Treasury note — the benchmark for the global bond market — surged to 4.54%, coinciding with tensions over the Strait of Hormuz. It once again broke through the psychological resistance level of 4.5%. The 10-year Treasury yield continued to trace an upward curve above the 4.5% line on July 8.
When corporate bonds are supplied to the market excessively while available funds are limited, companies must offer higher rates to attract investors. Moreover, when issuance is too large relative to a company's fundamentals, credit risk arises, so compensating yields inevitably rise. As private bond volumes increase, the investment appeal of government bonds naturally declines, pushing their yields higher.
Fed Sees AI Infrastructure Demand, Not Tariffs or Energy Prices, Driving Inflation... Weighing on Monetary Policy Decisions
The AI infrastructure investment boom and the resulting rise in bond yields could also influence the Federal Reserve's monetary policy decisions to some degree. According to the minutes of the June 16-17 Federal Open Market Committee (FOMC) meeting, released by the Fed on July 8, participants generally assessed that upside risks to price stability remained elevated, while downside risks related to achieving maximum employment had eased somewhat. Furthermore, several participants noted that "there are grounds to raise the target range for the benchmark rate."
FOMC meeting participants expected the impact of tariffs and rising energy prices on future inflation to diminish. At the same time, a majority of officials pointed out that strong demand for AI infrastructure is likely to sustain upward pressure on prices. At the meeting — the first chaired by Chair Kevin Warsh — most participants also agreed to a plan to abolish 'forward guidance,' the practice of signaling the monetary policy path in advance, after 15 years.
At that FOMC meeting, the Fed held the benchmark rate steady at 3.50-3.75% while abruptly pivoting its year-end rate path on the dot plot (a chart released quarterly showing Fed officials' rate projections as dots) from 'one cut' to 'one hike.' The next FOMC meeting will be held July 28-29. At a policy forum hosted by the European Central Bank (ECB) in Sintra, Portugal, on July 1, Warsh said, "Inflation risks have declined over the past four weeks, but look around and prices are too high," adding, "Potential growth is on an upward trend and the labor market is relatively flat."
According to online outlet Axios on July 6, the U.S. Bureau of Economic Analysis (BEA) will change the formula for personal consumption expenditures (PCE) — the inflation gauge the Fed regards as most important — starting next month. Specifically, the change takes effect with the August PCE data to be released on Sept. 30. The revisions cover the pricing methodology for portfolio management and investment advisory services, computer software and peripherals, and legal services. To minimize distortions from the statistical change, the BEA plans to recalculate and publish the past five years of monthly and quarterly PCE data under the new standard. Wall Street expects the change to lower core PCE by about 0.2 percentage points.
How long Big Tech's parade of AI corporate bond issuance continues beyond this year is likely to substantially reshape conditions in global financial markets. Above all, attention should focus on whether Big Tech can present AI revenue models sophisticated enough to repay the debt they have taken on within the next few years. If the profit structures they put forward fail to meet Wall Street's expectations, financial markets could face unexpected aftershocks.
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