Bob Michel, chief investment officer and head of global fixed income at JPMorgan Asset Management, says there’s no reason to be upset about the surge in corporate bond issuance by hyperscalers. While the market’s focus this week has largely been on the US-Iran conflict, the power of artificial intelligence to disrupt certain businesses remains a concern for stock investors. While the potential for disruption is not a major concern in bond markets, credit investors are concerned about increased issuance by big tech companies competing to invest in AI, according to a recent Bank of America study. Credit investors say for the first time that the AI bubble is their biggest concern, and high-end investors expect hyperscaler issuance to reach $285 billion this year, the firm said in a note last week. Companies like Alphabet, Amazon, Oracle, and Meta have traditionally grown with their own funds, but have recently begun turning to the debt market to fund significant increases in their capital spending plans. “When you see hyperscalers coming into the market, it’s jarring for a market that saw them as having a huge amount of excess free cash flow,” Michele said. “But if you take a step back and exercise your credit and leverage metrics, I think you’ll be fine.” In fact, Michele said there have been other times when issuance increased in certain sectors, like banks in the 1990s. Over time, he noted, the market will absorb that and learn to differentiate between good and bad borrowers. He believes hyperscalers issuing investment-grade bonds are thinking carefully about how to enter the market. “They don’t borrow or spend unless they see the demand there. The demand there has to be huge for them to want to build and invest,” Michele pointed out. “If there’s demand, that means there’s an order, which means ultimately there’s going to be cash flow.” But marginal borrowers haven’t really entered the bond market yet, he said. In fact, many AI loans are flowing into the private credit market, which has been hit by concerns about bond issuance. Is it time to buy or should you wait? Indeed, an influx of supply into the market can put pressure on valuations. Since price and yield are inversely related, this could result in higher yields. Guy Lebas, chief fixed income strategist at Janney Montgomery Scott, said he expects the investment-grade corporate bond market to grow 9% to 11% in 2026, after increasing about 6% in 2025. Spreads are currently near historic levels, meaning investors are rewarded less for taking on credit risk. Rubas said spreads should widen as more supply enters the market. “The corporate bond market is probably undersupplied, so pricing has been historically a little expensive,” he said. “As supply increases further, pricing in the investment-grade corporate bond market will become cheaper and returns more attractive.” Michele said investors need to make room for hyperscalar bonds in their portfolios, and he thinks the prices are reasonable. Although he did not disclose his name, he is investing in new bonds that have already hit the market. “We entered the new deal because the borrower likes it,” he said. “We like the way they’ve managed their business so far and have great confidence in their ability to convert capital investments into revenue and profits over the long term.” For example, the JPMorgan Core Bond Fund holds Alphabet bonds with February maturities and effective dates of 20, 30, and 40 years, according to the fund’s website. But BlackRock’s Rick Rieder is waiting for a better deal. He believes the issuer will eventually become similar to the big issuers of the past, such as autos and utilities, and become a natural part of a portfolio. He just doesn’t think now is the time to buy. Instead, he plans to wait until bond spreads become attractive. “So far, the levels are not attractive,” said Reeder, the firm’s chief investment officer for global fixed income. “There’s still a lot to come, and as long as they get to a good level, I’m excited about it.” But retail investors need to think about their overall allocation and be careful where they put their technology exposure, Lebas said. “In places like the stock market, there’s good evidence to support it. In places like very high-yield private credit projects, there’s good reason to support it,” Levas said. “When it comes to investment-grade bond markets, there may be better places to take high-tech risks.”
