AI Frenzy Fuels Record Debt Surge: Investors Wary of Bubble Risks as Tech Giants Borrow Billions
Artificial intelligence companies and tech hyperscalers are borrowing at unprecedented levels to fund massive data center expansions, but debt investors are sounding alarms over rising risks and potential overinvestment reminiscent of the dot-com era.[1][2][3]
Record-Breaking Borrowing in 2025
Hyperscalers like Amazon, Alphabet, Meta, Microsoft, and Oracle have issued approximately $121 billion in new debt this year alone to support AI infrastructure growth, with over $90 billion raised in the last three months.[1] Global tech firms have pushed this figure even higher, issuing $428.3 billion in bonds through early December, according to Dealogic data, with U.S. companies accounting for $341.8 billion.[2]
This surge stems from explosive demand for AI capabilities, driving construction of vast data centers equipped with advanced GPUs and servers. Capital expenditures (CapEx) are outpacing operating cash flows, forcing even cash-rich giants to tap bond markets aggressively.[1]
“These Capital Expenditure (CapEx) needs increasingly exceed expected operating cash flows, pushing firms to tap bond markets to fund growth at unprecedented speed and scale.”[1]
Investor Caution Signals Mounting Risks
While stock markets have largely ignored bubble warnings amid soaring AI share prices, the debt market reveals growing skepticism. New AI firms are paying lofty interest rates, with one data center builder, Applied Digital, charged up to 3.75 percentage points above peers—roughly 70% more in interest.[3]
Credit spreads have widened notably for Oracle and Meta, with lesser increases for Alphabet, Amazon, and Microsoft. Investors are hedging via credit default swaps (CDS), whose costs have risen since June, reflecting fears over execution risks in massive CapEx plans.[1]
Leverage Ratios Climb, Echoing Past Surges
A Reuters analysis of over 1,000 tech firms shows median debt-to-EBITDA ratios doubling to 0.4 by September’s end, compared to the 2020 surge—still below alarming levels but signaling debt growth outpacing earnings.[2] Experts warn this could strain balance sheets if AI fails to deliver returns amid rapid tech obsolescence and short chip lifespans.[2]
Scott Bickley, advisory fellow at Info-Tech Research Group, called it “an overheated marketplace” with a self-serving narrative of ‘go big or go home,’ deeming it unsustainable for hyperscalers.[2]
Future Borrowing Projections: Trillions Ahead?
| Firm | Projected Debt Issuance | Timeline |
|---|---|---|
| UBS | $900 billion (global companies) | 2026 |
| Morgan Stanley / JP Morgan | $1.5 trillion (tech sector) | Next few years |
Wall Street anticipates more: UBS projects up to $900 billion in new global debt next year, while Morgan Stanley and JP Morgan eye $1.5 trillion for tech over coming years to finance AI infrastructure.[1]
Parallels to Dot-Com Bubble Spark Debate
Concerns mount over construction delays in data centers, potentially delaying revenue from AI leases, and fears of a computing power glut leading to defaults.[3] Michelle Connell of Portia Capital Management described debt-funded AI CapEx as a structural shift driven by obsolescence, but questions linger on long-term viability.[2]
Bonds from some AI firms have already tumbled post-issuance, with CDS costs surging, underscoring investor wariness toward unproven businesses laden with debt.[3]
Balancing Optimism and Prudence
Despite risks, major tech firms remain profitable with substantial cash reserves and top market caps, providing some buffer.[2] Low borrowing costs and strong investor demand have fueled the spree, but as leverage rises, the debt market’s caution contrasts sharply with equity euphoria.
Analysts urge vigilance: While AI promises transformation, the scale of borrowing evokes 2000 dot-com memories, where hype outran fundamentals. Investors now demand premiums for the uncertainty, betting the AI boom must prove itself beyond stock hype.[3]
This borrowing bonanza underscores a high-stakes gamble—success could redefine economies, but missteps risk a painful correction in the $121 billion-plus debt pile already amassed.[1][2]
.article { max-width: 800px; font-family: Arial, sans-serif; line-height: 1.6; }
h1 { font-size: 2.5em; color: #333; }
h2 { font-size: 1.8em; color: #555; border-bottom: 2px solid #eee; padding-bottom: 10px; }
blockquote { border-left: 4px solid #007bff; padding-left: 20px; font-style: italic; }
table { width: 100%; border-collapse: collapse; margin: 20px 0; }
th, td { border: 1px solid #ddd; padding: 12px; text-align: left; }
th { background-color: #f4f4f4; }
.sidebar { background: #f9f9f9; padding: 20px; margin: 20px 0; border-radius: 8px; }
.image-placeholder img { width: 100%; height: auto; }
.tags { font-size: 0.9em; color: #666; }