According to a report, Bank of America strategist Michael Hartnett believes that as tech giants borrow heavily to build artificial intelligence (AI) infrastructure, U.S. technology corporate bonds have suffered sustained selling, pushing yields up to attractive levels, and investors may already have a buying opportunity on the dip. At the same time, this unprecedented AI financing boom is changing the capital allocation approach of tech giants, and the era of large-scale share buybacks funded by abundant cash flow may be coming to an end. Hartnett pointed out that U.S. investment-grade technology corporate bonds have fallen 9% so far this year, and their performance relative to the overall investment-grade bond index has dropped to the lowest level in 30 years. The main reason behind the continued pressure on technology bonds is that large technology companies have concentrated their entry into the bond market to build AI infrastructure, causing a sharp increase in bond supply. Data shows that tech giants including Alphabet (GOOGL.US), Meta (META.US), Amazon (AMZN.US), Microsoft (MSFT.US) and Oracle (ORCL.US) have issued a cumulative $182 billion in bonds since 2026, far above $17 billion in 2024, a more than tenfold increase in just two years. Such a massive increase in new bond supply has clearly pressured technology corporate bond prices and pushed yields continuously higher.
Technology bond yields surge, with high-quality corporate bond returns rising to 6% to 8%
As AI-related bonds suffered selling, yields on bonds from large technology companies including the "Magnificent Seven" have risen to relatively high levels. Hartnett pointed out that yields on some high-credit-rating technology corporate bonds currently range from 6% to 8%, while yields on lower-rated AI-related corporate bonds have reached double digits. In the high-yield bond market, AI cloud computing company CoreWeave (CRWV.US) bonds maturing in 2031 yield as high as 14.26%, Galaxy Digital (GLXY.US) bonds maturing in 2031 yield 11.44%, and SoftBank Group bonds maturing in 2034 yield 9.58%. In investment-grade bonds, Oracle bonds maturing in 2066 yield 8.43%, and Meta bonds maturing in the same year yield 7.40%. In addition, Amazon bonds maturing in 2076 yield 6.81%, Broadcom (AVGO.US) bonds maturing in 2056 yield 6.75%, Nvidia (NVDA.US) bonds maturing in 2056 yield 6.67%, and Alphabet bonds maturing in 2075 yield 6.66%. Long-term bond yields of other tech giants are also generally at relatively high levels. Among them, Micron Technology (MU.US) bonds maturing in 2051 yield 6.27%, AMD (AMD.US) bonds maturing in 2052 yield 6.15%, Microsoft bonds maturing in 2062 yield 6.08%, and Apple (AAPL.US) bonds maturing in 2062 yield 6.06%. In Hartnett's view, the previous sharp decline in technology bonds has already made yields on some high-rated corporate bonds attractive, offering investors potential allocation opportunities. However, rising bond yields also mean higher financing costs for the companies involved, and ultra-long-term bonds still face significant interest rate volatility risk.
AI investment changes tech giants' financing model, with stock and bond financing totaling $271 billion this year
In addition to the surge in bond issuance, tech giants are also raising funds through equity financing to support expanding AI capital expenditure. Bank of America data shows that so far this year, large technology companies have issued $182 billion in bonds while also conducting $89 billion in equity financing, bringing total bond and equity financing to $271 billion. This change marks a major shift in how the technology industry manages its balance sheets. In the past, large technology companies usually relied on strong operating cash flow to support business expansion and used large amounts of surplus funds for stock buybacks. But as funding needs for AI data centers, chips and other infrastructure continue to rise, tech giants are increasingly relying on external financing. Hartnett specifically mentioned that Meta's recent equity financing arrangement shows that technology companies are beginning to pay more attention to the interests of bond investors and the sustainability of their capital structure. He believes this change may mean that the long-term underperformance of AI-related bonds versus technology stocks is nearing an end.
Tech giants' stock buybacks plunge, and the era of large-scale shareholder returns may be over
It is worth noting that the AI investment boom has not only driven rapid growth in technology companies' debt levels, but is also squeezing the cash they use to reward shareholders. Bank of America data shows that stock buybacks by large cloud computing and AI infrastructure companies so far this year have fallen to $14 billion on an annualized basis, far below $105 billion in 2024, a decline of nearly 87%. This means tech giants are shifting more funds from stock buybacks to AI infrastructure construction. For many years, sustained large-scale stock buybacks have been one of the important factors supporting the valuations and earnings per share growth of large U.S. technology stocks. But against the backdrop of surging AI capital expenditure, the funds companies can use for buybacks have clearly decreased, potentially weakening this long-standing factor supporting technology stock performance. At the same time, as demand for bond financing increases, technology companies need to seek a new balance among expanding AI investment, maintaining credit ratings, controlling financing costs and rewarding shareholders.
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