Big Tech Floods Euro Bond Market with $1 Trillion AI Debt

US tech giants are flooding the euro zone bond market to fund their massive AI investments. According to a European Central Bank blog post, this could lead to them crowding out other borrowers and pushing up financing costs for governments and others.

The US big tech companies, often referred to as hyperscalers, plan to spend around $1 trillion on AI-related investments by 2028. This has forced them to tap debt markets worldwide, resulting in about €40 billion of bonds outstanding in the euro zone, accounting for nearly 10% of gross new issuance.

Amazon and Alphabet have been the largest corporate issuers in the euro zone bond market this year, with a potential spillover effect on the sovereign and supranational segment of the bond market. The blog's authors warn that the high credit ratings assigned to big tech debt may prove overly optimistic, making them more vulnerable to mispricing of credit risk.

The large volume of new debt issued by big tech firms could test investor appetite, amplifying borrowing costs across the market. Additionally, passive investors tracking bond benchmarks automatically increase their holdings of the sector, putting additional pressure on competing bonds and influencing spreads.