Big Tech Drives Record U.S. Corporate Bond Issuance Amid AI Boom

The race for massive funding by global tech companies to build artificial intelligence (AI) infrastructure is set to push U.S. investment-grade corporate bond issuance to a record high this year.

Bloomberg reported on October 26, citing its own data, that once the scheduled bond issuance is completed, the total for U.S. investment-grade corporate bonds is expected to reach $1.76 trillion (approximately 2,334 trillion won).

This figure surpasses the previous record of $1.75 trillion set during the low-interest-rate environment of the COVID-19 pandemic in 2020 and marks a significant increase from last year's issuance of $1.59 trillion.

The primary driver behind this historic surge is undoubtedly the investments in AI infrastructure by big tech and other technology firms. So far this year, AI-related funding in the global investment-grade bond market has exceeded $300 billion, nearly three times last year's total.

Companies are turning to long-term bond issuance due to the astronomical costs associated with building data centers and AI hardware. Recently, the initial costs for constructing a single advanced AI training data center have ranged from $5 billion to $10 billion, while establishing GPU clusters for training cutting-edge models can cost between $500 million and $2 billion.

Additionally, expenses related to securing power grids, long-term power purchase agreements (PPAs), high-performance networks, storage systems, and attracting specialized AI talent have led companies to adopt a long-term bond issuance strategy, looking beyond a decade.

As a result, despite rising interest rates and uncertainties regarding AI profitability, the bond issuance frenzy shows no signs of slowing down. The average credit spread for U.S. investment-grade corporate bonds has approached its highest level this year, and while the decline in U.S. Treasury yields has somewhat offset borrowing costs, big tech remains determined to secure funding.

Tim Coffey, head of investment-grade credit at AllianceBernstein, noted, "The increased borrowing costs are not constraining overall funding activity, as a significant portion of the funding for AI infrastructure investments is coming from technology companies that are relatively insensitive to interest rate changes."

Lindsey Rosner, head of multi-sector bond investments at Goldman Sachs Asset Management, remarked, "We are witnessing a capital-intensive corporate investment cycle that occurs once in a generation."

Wall Street investors are also responding enthusiastically. Major institutional investors, including pension funds, insurance companies, and sovereign wealth funds, view AI infrastructure as a long-term growth asset class and are allocating substantial funds, with many bond issuances seeing oversubscription.

Credit rating agencies are maintaining stable credit outlooks based on the robust financial statements and diversified revenue structures of major AI companies.