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Home » As bond investors fret over an AI bubble, what investors need to know
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As bond investors fret over an AI bubble, what investors need to know

i2wtcBy i2wtcMarch 4, 2026No Comments4 Mins Read
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There is no reason to be rattled by the surge in bond issuance from hyperscalers, according to Bob Michele, chief investment officer and head of global fixed income at JPMorgan Asset Management. While the market’s focus this week has largely been on the U.S.-Iran conflict , artificial intelligence’s power to disrupt certain businesses has remained a concern for stock investors. While that potential disruption isn’t a big fear in the bond market, credit investors are worried about the boost in issuance from big tech companies racing to invest in AI, according to a recent Bank of America survey. For the first time, credit investors said an AI bubble was their biggest worry , with high-grade investors anticipating $285 billion in hyperscaler issuance this year, the firm said in a note last week. While names like Alphabet , Amazon , Oracle and Meta have historically self-funded their growth, they recently began turning to the bond market to help pay for the huge boost in their capital expenditure plans. “When you see the hyperscalers come to market, it is jarring to a market which has viewed them as having tremendous excess free cash flow,” Michele said. “But if you just step back and run your credit and leverage metrics, I think you’re okay.” In fact, there have been other periods of elevated issuance from certain sectors, like the banks in the 1990s, Michele said. Over time, the market learns to absorb it and differentiate the good borrowers from the bad, he noted. He believes the hyperscalers, which are issuing debt that is investment grade, are being thoughtful about how they are coming into the market. “They’re not borrowing and spending unless they’re seeing the demand there, and the demand there must be enormous for them to go ahead and want to invest in the build out,” Michele noted. “The demand is there, which means the orders are there, which means the cash flow will ultimately be there.” The marginal borrowers, however, haven’t really entered the bond market yet, he said. In fact, a lot of AI financing has gone into the private credit market, which has been hit with concerns over debt issuances. Time to buy or wait it out? To be sure, an influx of supply into the market could put pressure on valuations. That, in turn, could boost yields since prices and yields have an inverse relationship. Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, said he’s anticipating the investment-grade corporate bond market to grow by 9% to 11% in 2026, after increasing by about 6% in 2025. Right now, spreads are near historic tights, meaning investors get less compensation for taking on credit risk. Those spreads should widen as supply enters the market, LeBas said. “The corporate bond markets have arguably been under-supplied, and so pricing is somewhat expensive, historically,” he said. “If there is more supply coming down the pike, I would expect pricing in the investment grade corporate bond markets to cheapen out and returns to be more attractive.” Michele believes investors need to make room in their portfolios for hyperscaler bonds, which he believes are reasonably priced. He’s already invested in new bonds that have hit the market, although he isn’t naming names. “We participated in the new deals that have come along because we like the borrower,” he said. “We like, so far, the way they’ve managed their business and we have tremendous confidence in them to be able to convert the capex to revenue and profits over time.” For instance, the JPMorgan Core Bond Fund holds Alphabet bonds with 20-, 30- and 40-year maturities and effective dates in February, according to the fund’s website. However, BlackRock’s Rick Rieder is waiting for a better deal. He believes the issuers will ultimately be similar to big issuers of the past, like autos and utilities, and will be a natural part of the portfolio. He just doesn’t think the time to buy is now. Instead, he’ll wait until the bonds have attractive spreads. “So far, the levels have not been intriguing,” said Rieder, the firm’s chief investment officer of global fixed income. “There’s still a lot more to come, and I’m excited about it, as long as they come at good levels.” Retail investors, however, may want to think about their overall allocations and should be careful where they have their tech exposure, LeBas said. “In places like the equity markets, there’s a good case for it. In places like really higher yielding private credit projects, there’s a good argument for that,” LeBas said. “When it comes to the investment grade bond markets, maybe there’s just better places to take your tech risk.”



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