Unlike equities, credit markets face a growing risk from the AI boom. As companies increasingly use debt instead of cash to finance AI and data center expansion, the rising supply of corporate bonds could pressure credit spreads to widen, even in a strong economy, echoing dynamics from the late 1990s tech bubble.

Rising interest rates create a double-whammy for AI firms. They increase borrowing costs for massive infrastructure projects and simultaneously reduce stock valuations as analysts apply higher discount rates to far-future cash flows.

The macro trend of rising bond yields creates a specific, acute risk for the AI sector. Many AI startups are funded by floating-rate private credit, and their debt service costs will explode as rates rise. This is compounded by high CapEx and an inability to scale revenues proportionally, creating a potential crash.

The biggest risk to capital-intensive AI ventures isn't a lack of demand but losing access to cheap financing. The current boom is built on borrowing long-dated money at low rates (e.g., 6%). A shift to a higher yield environment (8-10%) would make funding massive, negative cash-flow projects untenable.

The enormous capital needed for AI data centers is forcing a shift in tech financing. The appearance of credit default swaps on Oracle debt signals the re-emergence of large-scale debt and leverage, a departure from the equity and free-cash-flow models that have characterized the industry for two decades.

Tech giants are no longer funding AI capital expenditures solely with their massive free cash flow. They are increasingly turning to debt issuance, which fundamentally alters their risk profile. This introduces default risk and requires a repricing of their credit spreads and equity valuations.

Major tech companies are financing their AI build-outs so aggressively that they are undeterred by rising debt costs. This inelastic demand for capital could drive up borrowing costs across the entire corporate bond market, creating a 'crowding out' effect that impacts companies in unrelated sectors.

Massive, strategically crucial AI capital expenditures by the world's wealthiest companies could create a new risk. These firms may be less sensitive to borrowing costs, potentially issuing debt even into a weakening market, which could drive credit spreads wider for all issuers.

Despite huge demand for AI-related debt, such as Google's $25B raise, the sheer volume is causing "digestion issues" in the bond market. This forces even top tech companies to offer higher interest rates to attract capital, signaling potential market exhaustion from the AI infrastructure boom.