Goldman Sachs and Morgan Stanley dissect the AI debt binge as the credit party cools

Key Takeaways

• AI debt issuance hits record high, with $489 billion and $570 billion projected for 2026.
• Credit party for AI funding cools, with investors becoming choosier and demanding higher yields.
• Leverage among hyperscalers surges, with aggregate gross leverage doubling in six months.

Market & Token Impact

• AI debt issuance affects market sentiment and investor appetite.
• Higher yields demanded by investors may slow down AI funding.
• Leverage trend among hyperscalers may impact their financial stability.

Broader Context & What's Next

• The cooling credit party may lead to a bifurcated credit landscape, with investment-grade tech giants well-positioned to fund their capex plans.
• Lower-rated borrowers may face challenges in accessing debt markets.
• The $3 trillion in off-balance-sheet commitments adds uncertainty to the leverage trend.
• Analysts and rating agencies may start treating more of these commitments like debt, further increasing perceived leverage.
• The impact of hyperscaler capex on the leverage trend will be closely watched.
• Morgan Stanley's $1 trillion capex estimate for 2027 may lead to further increases in leverage.
• The future of AI funding and the credit market will depend on the ability of investors to balance risk and return.