Tech companies are piling on debt. Should investors care?

Equity investors know the AI boom is being built in the physical world – data centres, chips, power, cooling and networks. The spending is visible in earnings calls and capex charts, and it’s increasingly shaping how investors value the biggest technology names.

What's less visible is how that same buildout is affecting debt markets. Behind the share-price headlines, large issuers are returning to bond investors to help fund the infrastructure race.

UBS expects global tech-sector debt issuance across public and private markets to climb to around US$990 billion in 2026, up roughly 40% year-on-year, as hyperscalers ramp up capex - as shown below.

To be sure, the surge of debt doesn't mean credit spreads will blow out. But it does increase the importance of how investors navigate the nuances of bond markets.

In this wire, Dylan Bourke, Managing Director and Portfolio Manager at Kapstream, and Steve Boothe, Head of Investment Grade Fixed Income at T. Rowe Price, unpack what booming tech bond issuance means for investors and whether they see the best opportunities.

Tech issuance doesn’t break investment grade

Both managers stress that rising tech issuance, on its own, is not enough to destabilise investment-grade markets.

“This level of issuance represents moderate to brisk growth but is not sufficient on its own to drive a material widening in broad market credit spreads,” says Bourke.

Kapstream expects overall US investment-grade issuance to reach approximately US$1.8–2.0 trillion in 2026, compared with around US$1.76 trillion in 2025. That reflects increased funding needs from technology issuers, but hardly enough to impact spreads.

Boothe agrees, but says the environment does require investors to think more carefully about risk. 

“At a high level, spreads are tight and offer limited compensation for an increase in volatility, liquidity risk, or a broader pickup in credit downgrades and defaults,” he says.

That distinction matters because AI-related issuance is far from uniform. Some companies are funding infrastructure from positions of balance-sheet strength, while others are leaning more heavily on external funding to maintain their competitive position.

“Oracle has materially higher debt and lower EBITDA than Alphabet. The market is signalling a clear differentiation in credit risk across hyperscalers, driven largely by leverage," notes Bourke.

AI risk is more about ratings than defaults

Despite the scale of AI investment, neither manager believes investment-grade bondholders are facing a wave of defaults.

“Specific to investment-grade AI-related corporate credit, the primary risk is not necessarily defaults or a binary credit outcome,” Boothe says. “The risk is balance sheets being pressured by ongoing capital needs, resulting in lower free cash flow and greater future funding requirements.”

That pressure is more likely to show up in spreads and liquidity than solvency, particularly further out the curve. Longer-dated bonds tend to feel that impact first.

Bourke takes a similar view, describing the AI investment cycle as strategic rather than cyclical.

 “We see the AI capex cycle as similar in intensity to the Manhattan Project – effectively a do-or-die technological arms race,” he says. 

“Issuers, even those with strong ratings, appear willing to issue aggressively and tolerate potential rating downgrades to secure an advantage.”

Selective value in tech bonds, with sovereign risks rising

Kapstream has evaluated recent AI and hyperscaler-related deals closely but have not yet seen sufficient value to participate. Meanwhile, T. Rowe Price's participation has been selective, driven by deal structure and downside protection rather than theme exposure.

Both fundies point to important developments occurring in sovereign markets. Governments continue to issue heavily to fund rising deficits, with the IMF forecasting global public debt could climb toward 100% of GDP by 2030, led by the biggest sovereign debtors.

“Moderate growth in government issuance is more likely to pressure the long end of yield curves and has already contributed to the steepening of the US 2s10s curve,” Bourke says. “For long-duration investors, this means higher volatility and higher yields.”

Boothe is even more pointed on this issue. He argues that the risk from rising government bond supply is not simply the increase in net issuance, but the growing amount of duration the private sector is being asked to absorb - a shift with direct implications for liquidity and term premia.

“Government bonds can no longer be viewed as a uniform hedge against risky assets,” he says.

"Their role as a diversifier is increasingly conditional and requires thoughtful active management across country and curve."

So where are the opportunities?

Against that backdrop, both managers say the response is not to avoid credit, but to be more deliberate.

Kapstream's positioning

At Kapstream, portfolios remain overweight Australian and New Zealand issuers that are comparatively insulated from AI-related risks.

“We favour short-dated investment-grade securities and maintain short spread duration of approximately 2.05 to 2.36 years,” Bourke says. 

“Current yields to maturity are 5.44% and 5.98% respectively – attractive levels for A-minus or BBB-plus exposure.”

He also points to the expansion of data-centre asset-backed securities into Australia as an emerging opportunity. 

"One area of genuine opportunity for credit investors lies in the expansion of data centre ABS markets to Australia. These structures could offer senior A rated investors spreads closer high 100s-low 200s of spread, consistent with developments in other jurisdictions and have tight covenants to prevent further rating pressure from issuance," he says.

T. Rowe Price's positioning

Boothe highlights a similar opportunity set. Within investment grade, he favours high-quality, short-dated asset-backed securities and short-to-intermediate-dated corporate bonds. These areas, he says, offer attractive income relative to recent history, benefit from steep yield curves, and reduce exposure to more binary credit outcomes.

“Asset-backed securities are particularly appealing not only because of curve steepness, but also due to their amortising and self-liquidating structures, which provide a natural source of exit liquidity,” Boothe says. 

"While investment grade credit spreads are near recent tights, attractive yields and steep curves help support total returns, enabling compelling income generation and favorable forward compounding of returns."

From a strategic asset allocation perspective, Boothe says short-dated asset-backed securities and short- to intermediate-dated investment-grade credit offer income levels that are high relative to recent history, while also providing diversification benefits for investors.