AI Capex Boom Puts Credit Markets to the Test

Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley, discusses a new challenge for credit markets: an increase in bond supply driven by technology companies' capital expenditures for cloud and AI infrastructure. He contrasts this with the post-global financial crisis period, which saw reduced bond supply due to conservative corporate and banking practices. Sheets explains that while these tech companies are highly rated and profitable, their substantial borrowing, estimated at over $1 trillion in two years, is creating market shifts by offering new debt at discounts, making existing lower-rated debt less attractive. He characterizes this as a new, albeit less severe, challenge for the market that is likely to persist.