Debt tied to artificial intelligence has reached $1.2 trillion, making it the largest segment in the investment-grade market and surpassing US banks.
AI companies now represent 14% of the high-grade market, up from 11.5% in 2020, overtaking US banks at 11.7% on the JPMorgan US Liquid Index, reports Bloomberg.
JPMorgan Chase analysts identified 75 companies across technology, utilities and capital goods sectors closely tied to AI, including Oracle, Apple and Duke Energy. The analysts noted these firms are prolific debt issuers, with many technology companies maintaining strong cash positions and very low net debt. The cohort trades at 74 basis points, 10 basis points tighter than the broader JULI index.
Companies linked to AI have seen equity valuations surge since ChatGPT launched three years ago, as investors seek exposure to technology expected to reshape the global economy. The stretched valuations have raised concerns that earnings setbacks from major technology firms could trigger broader market selloffs.
“Debt tied to AI companies is growing fast but it trades tight for good reasons,” wrote JPMorgan analysts including Nathaniel Rosenbaum and Erica Spear in a note Monday. The analysts said most companies in this segment are high-quality issuers, either cash rich or not highly levered, and are likely highly regulated, justifying their outperformance.
Debt investors have shown strong appetite for AI-related offerings. Oracle’s $18 billion bond sale last month, the second-largest high-grade deal this year, attracted nearly $88 billion in investor demand. Banks and private credit firms have competed to underwrite debt deals supporting large data centre development.
“The torrid ascent of AI stocks has caused some angst for credit investors worried that any potential downside there could have credit implications,” wrote the analysts. “From a fundamental perspective, these fears are not justified.”
However, the analysts noted that an equity selloff in AI-related names would likely impact credit markets given tight trading spreads. Risk remains if these companies prioritise using cash reserves for capital expenditure or mergers and acquisitions ahead of debt redemption.
