AI buildout gives tech investors new reasons to watch bond market
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- Amazon, Alphabet, Microsoft and Meta are projected to deploy a combined $750 billion this year on AI infrastructure, up more than 80% from 2025, with much of the expansion funded by debt from Nvidia, Oracle, Amazon, Alphabet and Meta issuing tens of billions each.
- Goldman Sachs noted that capex as a percentage of cash flow is at its highest level since the dot-com era and expects total industry capex closer to $920 billion this year, with analyst estimates having been "too conservative" each of the past three years.
- Amazon is forecast to spend roughly $200 billion this year and is widely expected to see negative free cash flow, a reversal for a company that once generated the sector's fattest cash reserves.
- Federal Reserve Chair Kevin Warsh indicated in his first press conference on Wednesday the possibility of a rate hike in 2026, sparking an equity sell-off; the 10-year yield is trading near 4.45%.
- OpenAI CFO Sarah Friar pointed to the ability to leverage debt markets as motivation for going public, while bankers for SpaceX — which debuted on the Nasdaq last week — are preparing a bond offering of at least $20 billion, per Reuters.
- Nvidia stands apart with free cash flow jumping past $48.5 billion in the latest quarter from $26.1 billion a year earlier, giving CEO Jay Woods' Freedom Capital Markets reason to call the company's debt issuance "flexibility" rather than a red flag.
Why it matters: Tech companies that historically shrugged off rate hikes now face valuation pressure as debt-financed AI capex approaches $920 billion, with Amazon likely seeing negative free cash flow. If the 10-year yield holds near 4.45% or rises on further Fed signals, the discount rate applied to future tech earnings moves higher, and the sector loses its long-standing immunity to borrowing costs.
