Drone footage of the Google Storey County Campus data center at the Tahoe-Reno Industrial Center in Sparks, Nevada, on October 9, 2026. Spending on AI data centers by hyperscalers is fueling a rise in debt issuance in the tech sector.
Daniel Cole | Reuters
Concerns about artificial intelligence debt have eased after a spike in volatility. But further challenges to AI debt will come.
Oracle will hold an investor day on Wednesday. and hyperscalers alphabet and Amazon.com are scheduled to release their quarterly results after market close on Wednesday and Thursday, respectively.
Credit markets have been nervous about the flood of AI debt, but concerns have been easing a bit recently. meta platformThe $95 billion stock offering plan announced Monday helped narrow the company’s credit default swap spreads. Those spreads rose last week when the company reported negative free cash flow for the third quarter. Other CDS spreads were also rising, but have since retreated.
Meta 5-Year Credit Default Swap on October 27, 2026
Richard Chen, head of Nuveen’s investment-grade companies team, said investors expected Meta to bring a large bond deal to market immediately after the earnings release. It was a relief that it wasn’t announced.
“The mere absence of bond trading itself is a direct trigger for AI-related spread compression,” he said.
Credit spread is the difference between the yields on corporate bonds and U.S. Treasury bonds of similar maturities. Tighter spreads mean investors have more confidence in bond issuers.
Fear is “exaggerated”
Paul Meeks, a CNBC contributor and head of technology research at Freedom Capital Markets, said market movements over the past few days show investors are realizing that “credit concerns may have been overstated.”
“We’re hopeful that this positive sentiment — maybe not better, but maybe better — will continue as companies report their quarters over the coming weeks.”
Still, CDS spreads have remained widened over the past year as bond issuance surged and free cash flow turned negative across the AI space. For example, Meta’s CDS spreads are still up 177% year-to-date, while Amazon’s spreads are up 129%.
Amazon’s 5-Year Credit Default Swap (October 27, 2026)
Bond yields also continue to rise.
“It’s not necessarily the fundamentals,” said CreditSights analyst Jordan Chalfin. “Beyond that, I think 80% will be driven by technicals and sentiment.”
Focus on profit
Alphabet and Amazon are the next big hurdle for tech bonds as they update their capital spending plans and free cash flow forecasts. microsoftis also scheduled to report earnings on Wednesday, but the company has not yet issued any bonds to fund AI spending.
Amazon and Alphabet reported negative free cash flow in the second quarter, and analysts expect that trend to continue.
Analysts expect Alphabet to have negative free cash flow of $2.3 billion in the third quarter and spend $55.2 billion on capital expenditures, according to FactSet consensus estimates. Amazon is expected to report negative free cash flow of $9.9 billion on capital expenditures of $58.7 billion.
In an August report, S&P Global Ratings estimated that hyperscalers’ free operating cash flow will be negative in 2026 and 2027.
What’s more important is their outlook, Chen said. “The particular focus on investors’ minds is really what the trajectory of capex guidance is across the hyperscaler industry.”
Meeks believes the rise in capital spending is a sign of strong demand for AI. Hyperscalers “have decided, given all the evidence they have, and they have more evidence than you or I, that this is not only worth investing in, it’s not just worthwhile, it’s necessary,” he said.
CreditSights’ Chalfin doesn’t expect hyperscalers to announce large new debt issuances in conjunction with their earnings reports. Oracle’s update could become more important for credit markets. The company has $117 billion in long-term debt outstanding and is sticking to a BBB- credit rating, the lowest investment-grade rating above junk, according to S&P.
“This is a most significant IG technology achievement, given the emphasis compared to the A-rated name,” he said. “Despite being an IG, it trades like high-yield credit, which is why investors are so concerned.”
Oracle’s five-year credit default swap ends October 27, 2026.
off balance sheet debt
There is one problem with the AI debt story. That is, the balance sheet does not reveal the whole picture. S&P Global said in a September report that the companies have complex off-balance sheet arrangements for data center and chip financing that are not fully transparent.
“They’re making commitments that aren’t necessarily treated as debt, like data center leases and chip purchase commitments,” Mark Habib, head of digital infrastructure at S&P Global Ratings, said Monday on CNBC’s “Squawk on the Street.”
S&P is seeking to provide more visibility to the market about these commitments “to get a more complete picture of what kinds of obligations we actually have,” he added.
Aside from Oracle, all of the hyperscalers’ credit ratings are comfortably above A-level, reflecting the fact that the company has widely diversified revenue streams, enough coverage for interest payments, and the ability to add leverage when needed.
Nuveen’s Cheng is not concerned, pointing out that although there will be some credit price revisions, there is no credit crisis.
“They continue to have good credit profiles and strong cash-generating liquidity,” he said of the largest hyperscalers.
“At the moment, the market is not concerned about credit quality at all,” Chen added. “It’s really just the trajectory of capital investment needs and the supply of debt to fund it. They’re both pointing in one direction, and that’s upward.”
Correction: This article has been corrected to reflect that Oracle’s investment grade credit rating is BBB-, according to S&P. Previous versions had incorrect company credit rating characteristics.
