US technology giants are increasingly tapping Europe’s bond market to finance massive artificial intelligence investments, raising concerns that other borrowers could face higher funding costs and greater credit risks.
Major technology companies, including Google, Amazon and Microsoft, are expected to spend heavily on AI infrastructure in the coming years. Credit analysts estimate that their combined AI-related spending could reach $1 trillion by 2028, increasing their reliance on debt markets globally.
Although the companies currently have around €40 billion ($46 billion) in outstanding bonds in the euro zone, they account for almost 10% of new gross bond issuance. Amazon and Alphabet have emerged as the biggest corporate borrowers in the region’s bond market so far this year.
A European Central Bank blog post warned that the growing presence of US technology companies in the euro bond market could push up borrowing costs for other companies and governments.
The analysis said a continued increase in technology-sector debt could create spillover effects across sovereign and supranational bond markets. However, the views expressed in the blog do not necessarily represent the ECB’s official position.
The rapid rise in bond issuance could also test investors’ ability to absorb new debt. Expectations that technology companies will continue raising large amounts of financing could put further upward pressure on borrowing costs across the broader market.
The impact could be particularly significant because investors have limited capacity to absorb additional debt. Technology companies could also compete with other borrowers for funding as passive investment funds that track bond indexes automatically increase their exposure to the sector.
The ECB blog also questioned whether the strong credit ratings assigned to major technology companies fully reflect the risks associated with their growing debt burdens.
It warned that rating agencies could be relying on expectations of continued revenue growth and manageable leverage that may not materialise. This could increase the risk that credit risks are being incorrectly priced in the market.
Goodness Anunobi
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