AI Debt Deluge Hits $400 Billion and Stocks Are Paying the Price

AI-related debt supply has topped $400 billion this year, more than double the 2025 volume, according to Goldman Sachs' latest estimates — and the bill is now landing on stock portfolios. Tech shares in late October caught the cold that has dragged on the corporate bond market for months, as buyers of corporate debt struggle to keep up with the capital needs of the AI juggernaut.

"The bond market has a cold. The equity market may have a cold; and the culprit comes from tech," said George Catrambone, head of fixed income, Americas, at DWS, on Friday.

The selloff sharpened Friday, pushing Amazon, Alphabet, Meta, Intel, Oracle and SpaceX into the red, along with semiconductor stocks and other AI hot spots. Stock market gains have relied on tech in recent years. Now bond portfolios also hinge on tech borrowing, raising the stakes for the entire AI build-out to pay off as planned.

How did investors reward restraint?

Concerns about the industry's $1 trillion in expected yearly capital expenditures aren't new. But this week investors began rewarding companies willing to tap the brakes on heavy debt issuance — and punishing others.

Oracle's beleaguered stock finished the week higher after executives signaled a lighter borrowing load for AI going forward. Alphabet shares were hit on signs that AI's advance may encroach on a crucial part of its business, even as its data-center spending push continues.

Microsoft's new $25 billion bond, launched Thursday, drew a warm reception for related reasons. The company carries higher credit ratings than the U.S. government, has issued less debt than its peers and reported positive free-cash flow of $18.6 billion during earnings this week. Its 10-year tranche priced at a yield of roughly 5.5%, versus the 10-year Treasury at 4.93% on Friday, according to FactSet.

"Of course it's going to see good demand," said Peter Boockvar, chief investment officer at OnePoint BFG Wealth Partners, of Microsoft's deal. Yet for most companies borrowing to build AI infrastructure, the cost of capital has gone up, he added. Not every big tech company is expected to get pricing that favorable.

Higher borrowing costs can eat into future growth — not only for tech stocks but for the U.S. economy. Companies deemed at greater risk of not repaying their debts have been punished in October. Cracks in the riskier "junk bond" market and among neoclouds like CoreWeave have grown more apparent.

What is the Fed watching?

The shift has caught the U.S. central bank's attention. Federal Reserve Chairman Kevin Warsh addressed the trend Wednesday after the Fed opted not to hike rates in October.

"Interest rates get in the cracks, interest rates affect directly or indirectly, almost everything," Warsh said. "You've seen market participants that are discriminating between the kinds of investments they want to make."

Boockvar thinks the Fed might not hike in December if the market selloff picks up more steam. Fewer rate increases could help households juggling hot inflation, high gas prices and increased borrowing costs. Mortgage rates could ease.

Friday was month-end, which can trigger limited liquidity and exaggerated moves. Wall Street's Cboe Volatility Index, the "fear gauge," surged in the afternoon before ending nearly 13% higher at 19.42. The S&P 500 shed 1.8% on the day but remains 10.7% higher on the year.

Where is the money flowing now?

Until recently, the AI supply deluge had been siphoning demand from U.S. government debt since summer, pushing the 10-year Treasury yield to a 24-year high of 5.3% in early October. Buyers flooded back when AI tech stocks began to lurch lower.

"Treasurys are finally getting a flight-to-safety [bid] that's long overdue," Catrambone said.

The corporate side looks uglier. Total returns for the ICE BofA U.S. Corporate index turned more negative over the summer as the AI debt deluge intensified alongside rates volatility. The index sat on a negative 0.95% yearly return through Oct. 29, according to Dow Jones Market Data.

Negative returns sting when companies keep asking investors for blank checks — especially with borrowing costs up, capital increasingly rationed and free-cash flow scarce at many of Silicon Valley's marquee names.

"A lot more scrutiny is going on in the bond market," said Matt Wrzesniewsky, head of fixed-income client portfolio management at Vanguard.

Why do the midterms matter?

That scrutiny isn't only about credit. Opposition to AI data centers has become a growing worry for many voters. Any moratoriums on building data centers that stem from the midterms could trigger less capital flowing to the AI build-out, Catrambone said. Election-driven volatility would also make new equity raises and debt placements harder to pull off.

Hints of any slowdown in AI spending could clobber the S&P 500 — and questions would start piling up around the checks already written for the build-out.