NEW YORK: JPMorgan Chase & Co sees bond sales from technology-related firms exceeding half a trillion dollars this year, as hyperscalers’ appetite to deploy capital for the artificial intelligence (AI) buildout shows no sign of abating despite growing investor fatigue.
The bank raised its forecast for technology, media and telecommunications debt issuance in 2026 to US$540bil from US$450bil previously, citing increased spending by megatech players leading the AI investment cycle.
This is “reinforcing our expectation that debt-fuelled external financing will remain a defining feature of the AI investment cycle for years to come”, JPMorgan strategists, led by Erica Spear, wrote in a note last Friday.
The strategists see chip-backed financing as “the next major frontier” for funding the AI infrastructure buildout, potentially “extending into the trillions by the end of the decade”.
The bank has identified seven investment-grade data centre opportunities beyond the six that have been funded to date, four of which are expected to come from Oracle Corp and OpenAI.
It expects Meta Platforms Inc to return to the market after it reports third-quarter earnings, while Microsoft Corp is seen as the “largest wildcard” among the hyperscalers, potentially tapping bond investors for the first time since 2017.
“Hyperscaler debt, estimated at US$317bil for 2026, will make the bulk of the expected issuance, with US$85bil coming from data centre project financing,” the strategists said.
Data centre supply could easily exceed US$100bil if most projects in the pipeline materialise, they said.
The glut of issuance has raised concerns around investor indigestion, as reflected in the poor reception in the secondary market of bonds issued by SpaceX and Amazon.com Inc earlier this summer.
Spreads on some hyperscaler debt widened by around 15 basis points as the market absorbed US$75bil of unexpected supply in June and July, the bank said.
While spreads have recovered over the past week, the record issuance and limited visibility into the timing of future transactions “have left investors fatigued and increasingly focused on the prospect of an extended supply cycle rather than underlying credit quality”, Spear wrote.
Oracle has garnered attention in recent weeks following its downgrade by S&P Global Ratings, with its bond spreads trading near junk levels.
Despite this, JPMorgan remains ‘overweight’ on the company, viewing it as a standout among its hyperscaler peers for the relative value it can provide.
“We are willing to be patient,” wrote Spear.
Financing activity has been elevated outside of the hyperscalers too, prompting the bank to almost double its forecast for the technology sector, excluding hyperscalers, to about US$146bil, up from a prior US$78bil, largely to account for Nvidia Corp’s US$25bil June bond sale.
Furthermore, although the scale of AI investment justifies continued scrutiny, the bank believes the track record of major issuers justifies “a greater benefit of the doubt than current market sentiment appears to imply”.
“We do not believe we are through the supply hurdle this year, likely far from it, and continued volatility is near certain as investors navigate an opaque issuance calendar,” Spear wrote. — Bloomberg
