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(Bloomberg) — The biggest tech companies are borrowing more than expected to fund their spending on data centers and other artificial intelligence infrastructure, and the investment-grade bond market won’t be able to accommodate all of their financing needs.
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Debt issuance by so-called hyperscalers, which include companies like Meta, Alphabet Inc., and Amazon.com Inc., will likely exceed $200 billion this year and potentially increase further in 2027, Barclays analysts said in a note on Thursday. Capital expenditures could near $1 trillion next year from $725 billion this year, increasing further to $1.2 trillion in 2028, they said.
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“With annual supply already passing that of Big 6 Banks, hyperscalers are starting to test the market’s depth,” the analysts, including Andrew Keches and Remy Neuhaus, wrote. “Financing markets will continue to diversify over time” to accommodate supply with issuances like data center bonds, or equity-lined financings, they added.
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Recent issuances by Alphabet and Amazon in overseas markets such as Japan, Canada, and Switzerland, have shown how hyperscalers have been racing to tap pools of capital around the globe to avoid overwhelming the US market.
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Meanwhile, their bonds have been trading with higher credit spreads – which rise when credit risks increase – when compared to the overall high-grade market, in a sign that investors are demanding higher compensation given the expected flood of bond sales.
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In addition to capex, hyperscalers are increasingly locking in future data-center and infrastructure capacity through leases and long-term commitments, pushing construction costs onto developers while still taking on significant future financial obligations, the analysts said.
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The rapid growth in equipment needs, cloud-capacity, and power commitments suggests AI-related spending is likely to rise sharply in 2027 and 2028, and as spending grows, AI funding will likely continue to take different forms, they said.
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Several data center bonds have already hit the US high-grade market, with varying structures and provisions that investors are getting accustomed to.
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Going forward, companies may increasingly borrow against the value of their chips and servers instead of relying only on traditional corporate debt markets, said the Barclays analysts.
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“We view these solutions as part of a widening funding toolkit as hyperscalers look to optimize cost of capital and support sustained, large-scale infrastructure buildouts,” they said.
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