Fidelity shuns AI bonds as $121 billion debt wave strains spreads

Fidelity is steering its core bond portfolios away from AI-related corporate debt, arguing that buyers are no longer being paid enough to take the risk on a wave of new issuance from the largest technology companies.

"Investors aren't well compensated to own corporate securities right now," Stacie Ware, who co-manages the Fidelity Total Bond Fund, said in the firm's midyear outlook published June 3. She singled out the new AI deals, noting that the thin yield premium over Treasurys leaves little room for error and almost no room for reward.

Amazon, Alphabet, Meta, Microsoft and Oracle sold roughly $121 billion of U.S. corporate bonds in 2025, more than four times their average of about $28 billion a year between 2020 and 2024, according to a BofA Securities report cited by Reuters. Meta's $30 billion offering in October was the largest non-merger high-grade bond sale on record. The pace accelerated in 2026: Alphabet raised about $31.5 billion in February — including a rare 100-year "century" bond — and Amazon sold roughly $37 billion across 11 tranches on March 10, a sale that drew orders worth close to four times the amount on offer.

The asymmetry is stark. A bond's best outcome is that the borrower pays the coupon and returns the principal — exactly what the price already assumes. The downside is real: if the spending needed to build AI infrastructure forces these companies to borrow more, rating agencies could start to question the top-tier grades that make the bonds look safe today. A downgrade would push prices down, and with spreads this thin, buyers are taking that risk for almost no payment.

Where the money is going instead

Ware said her team has been holding more Treasurys, which now yield more than they have in two decades and can be sold quickly if better opportunities appear. The 10-year Treasury rate climbed above 4.5 percent in mid-May and the 30-year above 5 percent, as investors shifted from expecting two rate cuts this year to pricing in the possibility of a hike. The team has also been hunting in what the outlook called "less glamorous, and less easily understood, corners of the fixed income market," including commercial mortgage-backed securities tied to a single property type, the AAA slices of certain collateralized loan obligations, and asset-backed securities supported by business franchise fees.

A global bond phenomenon

The debt wave is not confined to the United States. Amazon raised 14.5 billion euros in March from an eight-part deal, the largest ever in the euro corporate bond market, according to LSEG. Alphabet has already become the seventh-biggest borrower in ICE BofA's non-financial euro corporate bond index and the fourth-largest in its sterling corporate index. Morgan Stanley expects around 50 billion euros of total borrowing from hyperscalers in euro debt this year, which could help lead the U.S. to overtake France as the euro zone's biggest source of overall corporate debt.

"If you look at the pace of investment of these companies and if you fast forward 12 months, some of these companies are already going to become among the biggest issuers globally in any currency," said Giulio Baratta, co-head of investment-grade finance at BNP Paribas.

Hyperscalers have seen their non-dollar issuance double to 30 percent of their total bond funding this year, according to Bank of America. Raising money abroad allows the companies to hedge currency risk from their global assets while limiting how often they tap the U.S. market, where heavy borrowing can weigh on bond prices.

The risk that isn't priced in

The caution from Fidelity is not an isolated view. Since the middle of 2025, the cost of insuring hyperscaler debt through credit default swaps has climbed, a sign that some investors are paying up for protection rather than trusting the ratings. The borrowing is heavily long-dated, reflecting the multi-decade life the companies assign to their data centers, which loads more interest-rate sensitivity onto buyers at a time when the direction of rates is unsettled.

Barclays expects total U.S. investment-grade corporate issuance to reach about $2.46 trillion in 2026, up 11.8 percent from 2025, with the increase driven mostly by non-financial borrowers. "The biggest upside risk is AI hyperscaler capex, which could require more jumbo public deals than typical," the bank's analysts wrote.

For bond investors, the question raised by the AI build-out is not whether the machines will work. It is whether they are being paid to find out.

This article is for informational purposes only and does not constitute investment advice.