AI Debt Tsunami: Hyperscalers Fuel 20-Year-High Interest Rates

Long-term interest rates in the US have reached their highest levels in two decades, and experts are pointing to 'hyperscaler debt issuance' as a key contributor. This refers to the rising debt loads of large technology companies, particularly those investing heavily in artificial intelligence (AI).

Apollo Global's chief economist, Torsten Slok, identified hyperscaler debt issuance as one of three main drivers behind 30-year Treasury yields sitting at a 20-year high, alongside inflation and fiscal deficits. Palumbo Wealth Management coined the term 'AI Debt Tsunami' to describe this phenomenon.

Goldman Sachs notes that hyperscalers have doubled their leverage ratios in just six months, from 0.9x to 1.8x, while the bond market's pain threshold has shrunk from $75 billion to $25 billion. This is causing credit-default-swap spreads on major tech issuers to widen sharply.

Microsoft and Alphabet are among those retaining 'fortress' balance sheets and strong free cash flow, despite the broader AI ecosystem facing mounting strain. Goldman projects that hyperscalers will spend a combined $5.8 trillion on AI infrastructure through 2030, putting further pressure on credit markets and long-term Treasury yields.