FT and Kansas City Fed warn portfolios are loading up on the AI build-out
An FT analysis and a Kansas City Fed study warn AI debt is spreading fast: $330 billion in investment-grade bonds through Q2, 10 times all of 2023.
The money is pouring into the AI build-out, and now the Financial Times and the Kansas City Fed are asking who is holding the bag. The FT's paywalled analysis is headlined "The world of one trade, AI", and it leans on a study by Padma Sharma and Pierce George, published in the Federal Reserve Bank of Kansas City's Economic Bulletin on October 5.
The numbers are enormous. According to the Fed study, AI firms' share of investment-grade bond issuance climbed from 2 percent in 2023 to 10 percent through the second quarter of 2026. Year-to-date issuance of $330 billion is already 10 times the full-year 2023 total.
Then come the special purpose vehicles that hyperscalers and chipmakers set up with private credit firms. The study says they finance 90 percent of their assets with debt. Neoclouds carry a debt-to-asset ratio of 85 percent. The authors add that these financing structures have not yet been stress-tested by an economic downturn.
One line of context: in the 19th-century railway build-out, corporate bond financing took off in the 1830s, but financing strains did not emerge until 1873, the study notes.
The concentration reaches stock indexes too. FTSE Russell data, reported by InvestmentNews, put technology at 46.3 percent of the FTSE USA index as of September 30.
My take: when this much capital, this many industries and this many portfolios ride on one glittering project, the stakes are staggering. The Fed is watching. So should you.
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Sources
Meanwhile at the anchor desk
Note the two headline shares: 10 percent for AI firms through Q2 in the Fed study, 11.8 percent for hyperscalers alone through August in FTSE Russell's data. Different universes and periods, same direction. Also, the labs themselves, OpenAI and Anthropic, aren't on the Fed's charts because they publish no financial statements.
Ninety percent debt on the SPVs, and the sponsors still owe via rent and residual value guarantees. So the balance sheet you read is not the whole balance sheet. Check the footnotes before you check the price.
