Bond Watch: how big tech is reshaping the market

In recent years, as technological themes - most currently the artificial intelligence (AI) revolution - have driven equity market performance (often for better, but sometimes for worse) an area historically more insulated area from these trends is fixed-income markets. 

However, while corporate bond markets have typically been the domain of banks, utilities and industrials companies, investors are increasingly absorbing bond issuances from large technology and tech-related companies at the epicentre of this AI transformation.

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AI-related capital expenditure is a major driver of this change, as companies ramp up funding for development of data centres, computing infrastructure and expanding energy requirements. 

Given the quantum of investment required for the AI build-out, even for large profitable companies there’s an increasing trend of raising capital for such investment via debt markets, as opposed to from cash flow.

While the equity of these AI-related companies draws immense investor interest and share prices often have reacted commensurately, bond investors don’t participate in the company’s upside even if their proposition is incredibly lucrative. 

As the approach to security selection and potential rewards for equity and bond investors are so different, the question arises as to how bond investors should think about this shifting fixed-income landscape.

The changing face of indices

The 2026 Global Debt Report produced by the OECD revealed that tech companies accounted for 9.6% of global non-financial corporate bond issuance in 2025. That marks an increase of 3.9% from 2024 and the highest market share since 2000.

“Hyperscalers” – such as Microsoft Corp (NASDAQ:MSFT), Alphabet Inc Class A (NASDAQ:GOOGL), Amazon.com Inc (NASDAQ:AMZN), Meta Platforms Inc Class A (NASDAQ:META) and Oracle Corp (NYSE:ORCL) – are driving much of this issuance as they have increasingly turned to the bond market to fund their AI built-outs, with large players reluctant to be left behind in the AI arms race.

For the end investor, this change ultimately will permeate into commonly tracked or benchmarked bond indices.

For example, within the high-quality Bloomberg Global Aggregate Corporate bond index, tech exposure has risen to around 7.5% of the index from nearer 5% in mid-2025, according to Morningstar data. 

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When we look at the holdings within an exchange-traded fund (ETF) tracking that index (for example, the Vanguard Global Corp Bd Idx GBP H Dist (BDFB5K3) fund), we already find Amazon, Oracle, Alphabet and Meta within the largest issuers (among more expected names such as Morgan Stanley (NYSE:MS), Bank of America Corp (NYSE:BAC), HSBC Holdings (LSE:HSBA) and AT&T Inc (NYSE:T)).

This trend looks more likely to build than to fade. 

The OECD notes that the nine largest hyperscalers have guided to some $4.1 trillion (£3 trillion) of capital expenditure between 2026 and 2030 - a figure roughly a third larger than the entire capital spend of every US non-financial company in 2025. 

Time will tell if demand can keep pace with this future supply of bonds.

‘Big tech’ doesn’t mean low credit risk

Alphabet illustrates the more benign end of the spectrum. 

The AA+ rated company recently issued a 10-year bond with a 5.45% coupon, priced at around 85 basis points over the equivalent US government bond. 

The issuance was well subscribed. 

For a business with substantial recurring cash generation and a fortress-like balance sheet, it could be argued that this premium offers reasonable compensation for the credit risk assumed.

Another less clear-cut example may be Oracle. It retains an “investment grade” credit rating, but only marginally after S&P cut it to BBB (the lowest rung of investment grade) in July after the company committed around $250 billion to AI-focused data centres and saw free cash flow swing to become negative in the year to end of May 2026.

Space Exploration Technologies Corp Class A (NASDAQ:SPCX) is a starker illustration still. 

Its $25 billion debut issue, launched within a fortnight of June’s IPO, drew close to $90 billion of orders across five tranches maturing between 2031 and 2056. 

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It carries investment-grade ratings from all three major agencies, yet the company posted a $541 million net loss in its first set of public results and, while this represented an improvement on prior figures, it arguably has a somewhat unpredictable path to profitability.

High-yield markets are possibly even more exposed. 

According to JPMorgan, technology accounted for 18.7% of high-yield new issuance year-to-date but only 8.6% of the index, implying the sector’s weighting could have considerably further room to run within benchmarks if trends continue.

For a lender then, the creditworthiness of the borrower matters rather more than the excitement surrounding the underlying technology, particularly where debt funds new and untested strategy rather than simply refinancing existing obligations.

What does this mean for fixed-income investors?

While there appears to be a structural change at play, we are in a relatively early stage and this doesn’t necessarily warrant an immediate change to strategies but a chance to think ahead. 

The Bloomberg Global Aggregate index remains dominated by government issuances (just over 50%), with the corporate allocation heavily biased to industrials and financials. 

Existing maturity lengths and index rules mean indices won’t change overnight.

However, the fact that many bond indices weight by the value of debt outstanding means a passive investor’s exposure to an issuer grows as that issuer borrows more - not as it becomes more creditworthy, nor because its bonds offer better value. 

Changes could be relatively slow but steady.

Nor is this to say that the technology sector ought be avoided by fixed-income investors. While bondholders typically don’t share in a company’s upside as an equity investor would, a lender fundamentally requires only that the coupon is paid and the principal returned. 

For the strongest and most profitable issuers, that obligation may be serviceable from existing operations, whatever the eventual outcome of the AI race or other technological themes. 

The counter argument to this, however, is that supply and sentiment can interact to create adverse outcomes. 

Heavy issuance has been absorbed so far. But were the earnings of these companies to disappoint or doubts deepen over the returns on AI investment, spreads for these bonds could widen – with potentially negative implications for bond prices.

The practical implication for investors is that credit selection could play an ever more important role. 

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Not every company financing the AI build-out shares the same credit profile, and there are likely to be winners and losers. 

Some are highly profitable, cash-generative businesses with recurring revenues and considerable balance sheet flexibility. 

Others are funding cyclical, capital-intensive investment whose eventual returns are far less certain. Oracle’s experience shows that a rating can move quickly when the market’s assessment of that certainty shifts.

This strengthens the case for active management within a fixed-income allocation. 

An active manager can differentiate between issuers, assess whether the spread on offer genuinely compensates for the credit risk taken, and decline to lend simply because a company has become a larger index constituent. 

Investors considering an actively managed approach might consider the PIMCO GIS GlInGd Crdt Instl GBPH Acc (B0HZNB9) fund – a name you can find by using ii’s Highly Rated Funds tool – which currently has an underweight to technology (at 3.8% of the portfolio), but is selectively positioning from the bottom-up, and for example still allocating to Meta, Oracle, and Dell Technologies Inc Ordinary Shares - Class C (NYSE:DELL), etc. 

Managed by Mohit Mittal and team, the fund has an objective of outperforming the Bloomberg Global Aggregate Credit Index and aims to do so via a diversified portfolios focused on the higher-quality end of the bond market. 

Management determine the top-down themes that show up in this portfolio’s interest rate positioning and sector weights, with this complemented by in-depth regional and issuer analysis. 

The current yield of 4.8% is competitive and the charge of 0.49% is compelling given the resource and experience behind the management team.