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Image | Hero | QOTW - Question 2

Is the Credit Market Putting the Brakes on AI?

Sam Acton, CFA, Portfolio Manager, Co-Head Fixed Income

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Few markets ask hard questions as quickly as the bond market, and right now it is asking plenty about AI. In recent months, credit markets have weakened significantly for AI-related issuers. An extreme example has been CoreWeave, Inc., whose bonds have dropped approximately 20 points since June 2026, with yields blowing out to 15%. But even the investment grade names have seen material spread widening over this period, with large dispersion between higher quality and lower quality credits.

Chart 1 | QOTW - Question 29
Chart 2 | QOTW - Question 29

A Market Growing More Discerning

We believe the credit market is concerned about three key items. The first is new issue supply. Over US$300 billion in AI-related bonds have been issued in 2026, as of the end of October, with widely accepted market expectations for growth in issuance in 2027 and 2028 as the massive future spending commitments start to kick in. Whenever there is a new deal announced, it requires a new issue concession, and it pressures existing spreads wider. The second is capital expenditures versus cash generation. There is clear differentiation between companies with existing businesses generating cash flow that can help fund growth capital expenditures and those without. The third is customer concentration and circular financing. These companies are increasingly intertwined as investors, customers and lenders, and ultimately there is a high degree of concentration around the success of OpenAI and Anthropic.

What This Could Mean

  • More balanced financing.
    We have seen a few of these companies issue equity to maintain strong access to credit markets, and we could see more equity issuance as well as more structured and private credit solutions.

  • Less aggressive growth.
    Perhaps some business models, such as the neoclouds, are too aggressive to be financed in a more discerning credit market. We could see a slowdown in growth spending by these players, and eventually more consolidation and bankruptcies.-

  • Higher correlations and volatility.
    A growing percentage of the credit market is closely tied to this theme, so we expect spreads to move together when a new issue is announced or when there is fundamental news, such as revenue updates from the frontier artificial intelligence labs.

    In short, the credit market does not appear to be ending the AI build-out, but it is asking for it to be financed more carefully. And for those companies that continue to have access to the bond market the cost of financing may continue to move higher.

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All data sourced from Picton Mahoney Asset Management Research unless otherwise cited.

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