Hyperscaler AI Debt Pressures European Investment-Grade Credit Markets

Senior strategist Hugh Briscoe of Morgan Stanley Investment Management Inc. warns that the relative appeal of European investment-grade credit may diminish as hyperscalers increase bond issuance in the region. Major technology firms, including Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., and Microsoft Corp., are borrowing heavily to fund trillion-dollar AI infrastructure projects.

While U.S. markets have borne a disproportionate share of this debt so far this year, Briscoe notes that these companies are turning to European markets because raising capital in the U.S. has become expensive. High supply volumes are already pressuring bond spreads, highlighted by a $25 billion offering from Amazon.com Inc. last month and an average widening of 22 basis points for Meta Platforms Inc. bonds in July.

Despite the volume of debt, Briscoe states that these businesses remain solid and continue to raise money cheaply relative to their credit ratings. However, he expects that more systemic issuance in Europe will likely shift valuation outlooks and push investment-grade spreads wider by the end of the year.