Mind the Inflection Points: Artificial Intelligence & Debt… Part II

AI infrastructure debt is becoming too complex and dependent on optimistic growth assumptions for bond investors to underwrite broadly, so Brown Advisory prefers the sector’s “picks and shovels” while remaining defensive elsewhere.

• AI-related issuance has accelerated: investment-grade debt reached approximately $130 billion year to date, high-yield issuance exceeded $27 billion, securitized issuance topped $11 billion, and publicly reported hardware financing surpassed $50 billion, for roughly $220 billion in total.
• Hyperscalers represented approximately 23% of investment-grade non-financial corporate supply, while Technology companies including Amazon and Meta accounted for 38%; Alphabet and Amazon also issued $60 billion in non-U.S.-dollar debt, including Alphabet’s £1 billion 100-year bond.
• SpaceX plans to issue at least $20 billion of debt after its IPO despite negative free cash flow, while its proposed $60 billion all-stock acquisition of Cursor and the return of Alphabet and potentially Meta to equity markets may signal that even strong issuers are reassessing debt capacity.
• Oracle’s additional lease commitments rose from $100 billion at the end of August 2025 to $260 billion by the end of May 2026, compared with $130 billion of balance-sheet debt, creating substantial debt-like exposure that requires future revenue commitments.
• AI demand and pricing are becoming less certain: companies are scrutinizing productive use cases and returns on investment, OpenAI may cut prices amid competition from Anthropic and Chinese providers, and annualized capital investment is approaching $1 trillion.

Takeaway: Bondholders should demand greater conviction as financing complexity, leverage-like commitments and reliance on growth assumptions increase; Brown Advisory intends to favor companies benefiting from AI spending and avoid new AI infrastructure financing until cash flow and balance-sheet health stabilize or valuations better reflect the risks.