Signal — The Market That Blinks First
Investor anxiety over Big Tech’s AI infrastructure binge has now migrated into the corporate bond market. Debt issued by hyperscalers such as Meta, Microsoft, Alphabet, and Oracle is showing signs of strain, with investors demanding higher yields to hold it. The spread over Treasuries for this basket of AI-heavy bonds has climbed to 0.78 percentage points, up from 0.5 — the sharpest widening since Trump’s April tariff shock. This shift signals that the credit market, which prices risk rather than narrative, is beginning to question the sustainability of AI’s capital intensity.
The Earnings Illusion Meets the Credit Test
Big Tech’s AI story has been funded by accounting elasticity and cheap debt. Firms like Meta and Oracle extended depreciation schedules on data-center assets, boosting paper profits while suppressing expenses. Those same firms then issued corporate bonds to fund further AI expansion — a feedback loop of optics and leverage. Now the loop is breaking. Credit spreads have widened as investors realize that every extra year of “useful life” on a GPU means one more year of hidden cost. Debt, unlike equity, cannot be persuaded by narrative; it requires proof of cash flow, not promise.
Divergence Within the AI Stack
The bond market is distinguishing between builders and believers. Hyperscale builders — Meta, Microsoft, Alphabet, Oracle — are seeing spreads widen as capital intensity outpaces return visibility. Capex-disciplined players such as Amazon, Apple, Broadcom, and AMD remain stable, rewarded for conservative depreciation and measured expansion. Sovereign outliers like Huawei and Cambricon are insulated by opaque, state-aligned debt structures, where credit risk is political, not financial. The pattern is clear: exposure without yield discipline is being punished. Not all AI stocks are the same — some build compute, others build narrative, and the bond market knows the difference.
Depreciation as a Credit Risk
What began as an accounting trick is now a credit event. Firms extending asset lifespans beyond reality are inflating earnings and misrepresenting cash flow strength. When rating agencies incorporate this into their models — adjusting for inflated margins and deferred expenses — spreads widen, liquidity tightens, and the cost of capital rises. Credit markets are not punishing AI; they are penalizing opacity. The larger the mismatch between infrastructure aging and accounting narrative, the higher the yield demanded.
Yield Distortion
Mispriced depreciation does not just distort corporate valuation; it distorts allocation. Pension funds, ETFs, and tokenized instruments benchmarked to AI-linked indices are now carrying credit exposure that looks safer than it is. When sovereign allocators rely on earnings inflated by deferred costs, yield curves absorb fiction. The result is systemic: a quiet mispricing of AI’s true cost of capital across asset classes. This is how localized accounting choices scale into global risk — through yield distortion disguised as innovation.
Closing Frame
The bond market has begun to reclaim truth from the balance sheet. Spreads are widening, valuations are recalibrating, and the narrative of infinite AI expansion is colliding with finite capital. Debt, unlike equity, has no patience for exaggeration. Because in this choreography, earnings whisper optimism — but spreads codify reality.