Investor fears about the explosion in artificial intelligence debt are playing out differently in investment-grade and high-yield markets, according to new research from Goldman Sachs. Big tech companies and AI startups flooded the bond market this year to finance the construction of massive data centers around the world, but the response has been muted. Currently, AI-related bonds are underperforming the broader credit market, and Goldman analysts note that the nature of investor anxiety largely depends on credit quality.Concerns in the investment grade (IG) market appear to vary by issuer, the bank said in a research note published this week. In contrast, concerns in the high-yield (junk bond) market are viewed as a broader sector-wide concern.
“Untested” Execution Risk
The performance decline comes as investors weigh the risks of construction delays and unproven revenue models against the huge capital expenditures required for AI infrastructure.Mirabeau fixed income portfolio manager Al Kattermole told Reuters that as of Nov. 25, his team had chosen not to invest in recent AI-related investment-grade or junk bonds. Mirabeau, which manages about $37.4 billion (30 billion Swiss francs), cited opaque contracts and enforcement risks.“Until a data center is delivered on time and on budget, provides the intended computing power, and the demand for that still exists, it is untested,” Cattermole said. “And since it hasn't been tested, I think it should be compensated like equity and not debt.”
Choosing the “haves and have-nots”
Despite the concerns, some executives see this volatility as an opportunity to buy quality stocks.Christopher Kramer, portfolio manager in Neuberger Berman's investment-grade credit team, said the structural shift to AI-related bonds is creating opportunities for selective investors. He described the market as divided into “haves and have-nots.”“Doing 'on-balance sheet' and 'off-balance sheet' credit work remains paramount,” Cramer said. “We're excited just from the perspective that the market is changing, with security choices becoming a game-changer.”Mr. Kramer would not comment on whether Neuberger, which manages $558 billion in assets, participated in recent top-tier AI corporate bond issuances.The market skepticism coincides with warnings from regulators. The Bank of England warned this week that the increasing role of debt in the AI infrastructure boom could raise financial stability risks if valuations were revised.While Goldman Sachs maintains that the overall credit market appears fundamentally healthy, the widening gap between AI-related bonds and the broader market suggests that the AI hype cycle is facing a reality check for fixed income investors.
