The rush to finance artificial intelligence infrastructure is creating unprecedented market disruption across the $10 trillion US corporate debt market. According to Bloomberg reports, heavyweights including Oracle Corp., Broadcom Inc., and SpaceX have priced nearly $500 billion of new debt this year alone to fund AI infrastructure. Broadcom alone may raise approximately $600 billion to finance computing power in the coming years, as reported by Bloomberg calculations. This represents a dramatic shift from traditional merger and acquisition financing, with nine US high-grade deals of $25 billion or above in size this year - the most ever recorded, with most concentrated in the technology sector. The AI boom has been particularly evident in semiconductor stocks, with the PHLX Semiconductor Sector Index surging over 71% in 2026 amid AI-driven market gains.
The scale of AI financing is creating measurable stress in credit markets, with credit default swap (CDS) prices for major tech companies reaching concerning levels. Oracle's CDS has surged above 260 basis points, surpassing previous highs and implying a 19.5% market-implied probability of default over five years, as reported by Investing.com. SpaceX trades at approximately 16% risk of default over five years, while Nvidia Corp. carries a more than 7% risk of default in that timeframe. Credit spreads have widened again on Thursday, including those on the CDX High Yield and iTraxx Europe Crossover indexes, with some spreads exceeding previous highs. Average daily trading volumes for tech names in bond and credit derivatives markets have soared, indicating heightened investor interest and potential market stress. As WealthMills equity strategist Kranthi Bathini notes, if yields rise beyond 6%, it's going to have an adverse impact on global equity universe, particularly affecting momentum stocks and the AI trade.
The pace of AI-related borrowing is creating unprecedented market volatility that would have been unimaginable just a year ago. As reported by Bloomberg, Mark Clegg, senior fixed-income trader at Allspring Global Investments, noted that "every new financing announcement feels like another entrant in an auction for investor balance sheet, and that's creating a level of spread volatility that would have seemed hard to imagine a year ago." The US high-yield market is positioned for one of its busiest years on record, with investors demanding higher compensation for AI-related lending, particularly as financing needs expand beyond hyperscalers into chip financing and data centers. Relatively tight credit spreads have helped explain why stocks have avoided more pain as yields have risen, but if the widening continues, it would be expected to feed into higher implied volatility. With Treasury yields hitting two-decade highs, the 10-year yield peaking at about 5.4% this week - the highest since 2002 - and the 30-year coming close to 5.7%, the AI trade faces its biggest test yet. Recent developments show that bonds issued by the weakest borrowers yield about 15%, creating a punishing hurdle for companies needing to refinance.
The most vulnerable companies are those borrowing heavily to build AI capacity, with nearly $500 billion of AI-related debt priced this year according to Bloomberg reports. Oracle exemplifies this risk, with its quarterly interest expense reportedly rising 55% from a year earlier to $1.43 billion, and shares down about 30% for the year as of late September. Its 2066 bond yields about 8.45%, according to 24/7 Wall St. reports. CoreWeave faces similar pressure, with filings showing that every 100-basis-point rise in rates could add $30 million to its interest costs on floating-rate debt. Its quarterly interest expense more than doubled to $640 million in the June quarter and is guided to between $860 million and $940 million for the September quarter. Broadcom has also drawn attention, reportedly seeking more than $50 billion for custom chips it is building with OpenAI, with the cost of insuring its five-year debt against default widening to a record 136 basis points.
Despite the current market stress, most major AI borrowers remain profitable with steady cash flow and earnings momentum. However, as noted by T. Rowe Price's Steven Kohlenstein, there are growing concerns about concentration risk, with exposure concentrated among a relatively small group of companies tied to the same AI investment cycle. The market is adapting to these conditions through increased spread volatility and higher compensation demands from investors. Andrew Dassori from Wavelength Capital Management suggests that while companies face immense funding needs for AI computing capacity, revenue growth may face increased pressure from competition and potential regulation, creating potential market swings that could create opportunities for traders. As WealthMills strategist Kranthi Bathini warns, not every AI stock faces the same risk, with vulnerability depending on how a company is funded, how it is valued and how cyclical its earnings are, making selectivity crucial as the AI trade faces its most challenging period yet. Recent analysis suggests that a scenario combining a continued drain on megacap tech's cash flow with a 6% yield on 10-year Treasuries and oil at $150 a barrel could send the S&P 500 down more than 20% next year, according to Societe Generale strategists. The S&P 500's all-time high arrived with unprecedentedly thin breadth, with only 30% of the index's members trading above their 50-day moving average - the weakest participation among all record days since Bloomberg data began in 1990.
