AI spending lifts borrowing costs for tech firms

Hyperscalers including Oracle, Alphabet, Microsoft, Amazon and Meta are on pace to invest more than $750 billion in artificial intelligence this year, an amount greater than 2% of U.S. annual gross domestic product. Market measures show technology companies now face roughly a 16% premium when issuing debt compared with the broader market.

The spending is concentrated on large data centers and supporting infrastructure: servers, networking equipment, power delivery, cooling systems and real estate. Companies are expanding server farms and adding networking and power capacity to run large AI models, which increases capital needs beyond routine operating expenses.

For much of the past decade, many technology firms carried fewer physical assets than manufacturing or utilities companies and financed growth largely from free cash flow. That pattern kept credit spreads on tech debt about 14% below those of a broader group of similarly rated companies. The current cycle of hardware and facility investment has changed that financing profile for several firms.

Companies are raising external capital through corporate bond sales, bank loans and equity offerings. Debt increases interest obligations and can raise leverage. Equity raises funds without fixed interest costs but alters ownership stakes. Recent public filings and capital-markets activity show larger and more frequent financing transactions among major technology companies compared with prior years.

Data-center spending is ongoing: firms add capacity as compute demand grows and replace servers and other equipment over time. Financing large facilities can involve multi-year commitments and higher interest expense when firms rely on borrowed funds.

Credit-market indicators and corporate disclosures point to higher borrowing costs for technology issuers during the current AI investment cycle. The gap between tech borrowing costs and the broader market has narrowed from its historical level and now shows a premium for tech debt.