Big Tech is borrowing like never before to fund the AI buildout, and the Fed just made that debt more expensive. Nvidia's $25 billion bond sale drew $85 billion in orders, but Morgan Stanley projects AI-linked global debt issuance will reach $570 billion in 2026 — a pace that leaves even the strongest balance sheets exposed to rising rates under new Fed Chair Kevin Warsh.
Nvidia doesn't need the money. That is what makes its $25 billion bond sale — upsized from $20 billion after investors placed more than $85 billion in orders — the clearest signal yet that the AI buildout has moved beyond cash-flow financing. The chipmaker, which still holds $13.24 billion in cash, filed for its first investment-grade debt issuance since 2021, according to a Reuters report on the deal led by Goldman Sachs, J.P. Morgan and Morgan Stanley.
"The bond issuance came as a surprise to investors because the company said little ahead of time," one source familiar with the matter told Reuters, speaking on condition of anonymity. Nvidia said proceeds would go toward general corporate purposes including refinancing, but the scale of demand — more than three times the final deal size — tells a different story about where institutional money sees the AI opportunity.
Morgan Stanley projects AI-linked global debt issuance will reach nearly $570 billion in 2026, after roughly $236 billion had already been sold by the end of May, according to figures cited by CNBC. Meta has already tapped the bond market for $25 billion. Alphabet sold $20 billion of debt, including a rare 100-year sterling bond. Oracle lined up $17.5 billion in financing tied to AI infrastructure, even as Moody's rates it Baa2 — only two notches above junk — and the company is expected to burn as much as $28 billion of free cash flow in 2026. Combined Big Tech AI outlays are set to surpass $700 billion this year, up from around $400 billion in 2025.
The timing is awkward because the cost of that debt just went up. Kevin Warsh, confirmed as Fed chair on May 13, held rates at 3.5 percent to 3.75 percent at his first policy meeting in June but stripped back forward guidance, according to Kiplinger's live account. Treasury yields jumped and the S&P 500 fell 1.2 percent. Half the Fed committee's projections reportedly pointed to at least one rate increase this year. A data center financed at easy-money rates is one thing; the same project financed while the two-year Treasury yield hovers around 4 percent and the Fed is openly discussing higher rates is another.
The Circularity Problem
There is a self-reinforcing loop at work that makes the debt buildup harder to unwind. Cloud companies borrow to build data centers. Those data centers buy Nvidia chips. Nvidia invests across the AI ecosystem and raises debt of its own. Investors then lend more because AI revenue growth looks unstoppable. That loop works when cash flows keep arriving. It gets less forgiving if customers delay projects, if power constraints slow construction, or if the promised productivity gains take longer to show up in actual profits.
SpaceX is now joining the party. The company is preparing to discuss a bond offering of at least $20 billion, its first foray into investment-grade US dollar bonds, according to reports. This follows SpaceX's record initial public offering and a $60 billion all-stock acquisition of AI coding startup Cursor. Elon Musk's company posted a net loss of $4.94 billion last year on $18.7 billion in revenue, yet its market capitalization has reached $1.7 trillion — a valuation that one adviser told the Financial Times "makes no sense" from a strict corporate finance perspective.
What This Means for Investors
Shareholders who bought these businesses for fortress balance sheets now own something more sensitive to the price of money. Alphabet and Meta can still borrow on good terms, but their free cash flow is being squeezed as capital expenditure climbs. Oracle is the warning label: Baa2-rated, burning $28 billion in cash, and relying on debt markets to fund a buildout that has no off-ramp. Nvidia shares closed up 3.3 percent on the day of its bond sale, but the company's decision to raise $25 billion in debt — despite holding $13.24 billion in cash — suggests even the AI chip leader wants more dry powder than its balance sheet alone can provide.
The old technology trade was about growth, margins and cash. The new one adds duration, refinancing and central-bank policy to the same page. Warsh has promised less forward guidance, not more. So the AI buildout now has two clocks running at once: the industry clock, where every company wants capacity before its rivals get it, and the bond-market clock, where every new issue depends on what investors think inflation and rates will do next. Nvidia got its deal done. The question is how many more companies can keep doing the same if the Fed refuses to make borrowing easier.
This article is for informational purposes only and does not constitute investment advice.
