Tech Stocks Plunge as AI Debt Concerns Mount
TREE NEWS reports: U.S. technology stocks suffered their worst single-day drop since the pandemic on Thursday, November 5, with the S&P 500 falling 4.4% and the Nasdaq 100 plummeting 6.4%, erasing more than $3 trillion in market value. The selloff was triggered by the outcome of the 2026 U.S. midterm elections, in which Democrats swept both chambers of Congress and multiple governorships. Many newly elected candidates campaigned on restricting data center construction and tightening industry regulation, fueling fears that AI infrastructure investment could face policy headwinds.
But the equity market turmoil may be just the opening act. Goldman Sachs credit strategist Amanda Lynam warned in a new report that AI-related debt supply is flooding the market at a pace far exceeding anyone’s expectations, and that credit spread risks are “clearly skewed toward further widening” in the coming weeks.
Debt Issuance Shatters Forecasts
In the week leading up to the election, five major hyperscalers—Alphabet, Amazon, Microsoft, Meta, and Oracle—completed five bond deals totaling $67 billion, pushing year-to-date issuance to $296 billion. That already exceeds Goldman’s full-year 2026 forecast ceiling of $25 billion—a forecast that has been shattered every 48 hours by reality. Microsoft’s single offering of over $25 billion marked its first dollar bond sale since 2017. Oracle exhausted its entire four-year financing limit in a single morning, just five days after announcing its plan.
Goldman cites two reasons for the surge: hyperscalers collectively posted negative free cash flow in Q3 2026 as capex outpaced operating cash flow, and some issuers are pre-funding 2027 plans. “Borrowers know the issuance window may not stay open forever,” the report notes. For 2027, Goldman expects hyperscaler direct issuance to reach $440 billion, plus $300 billion in investment-grade and high-yield project financing, bringing total AI-related debt supply to nearly $740 billion—before accounting for emerging cloud players, chipmakers, or utilities.
Credit Market Saturation Alarms
Goldman explicitly states that between now and early December, credit spread risks are “clearly skewed toward widening.” In the dollar market, spreads are expected to slightly exceed March highs (93 basis points for investment grade, 335 bp for high yield); in euros, April 2025 levels serve as a near-term downside reference (128 bp IG, 446 bp HY).
After ten months of record supply, credit investors have earned virtually nothing: year-to-date excess returns are just 0.1% for dollar IG and 0.0% for HY, while euro HY is -1.0%. This may explain why Goldman has quietly abandoned its preference for IG over HY, shifting to BBB-rated credits over A and AA. Notably, AI-related new issue concessions have averaged about 18 bp in November, far above the sub-7 bp for non-AI deals and the ~8 bp average for AI deals since early 2025. In other words, the world’s highest-rated borrowers are paying near-junk premiums to issue, and each concession widens the secondary curve further.
Off-Balance-Sheet Iceberg
Bond issuance data only scratches the surface. For the first time, Goldman quantified hyperscalers’ off-balance-sheet obligations: $1.7 trillion in operating and finance lease commitments (over 75% for leases not yet commenced, thus absent from balance sheets) and $1.9 trillion in other unconditional purchase commitments, of which $685 billion matures by end-2027. Moody’s noted in September that hyperscalers’ total financial commitments have grown eightfold since 2023 to $2.8 trillion. S&P warned in October that the AI financing ecosystem’s “margin for error is narrowing” and downgraded the outlooks for Broadcom and Meta, citing off-balance-sheet obligations.
Key Takeaways for Investors
- Credit spreads are at risk of widening: Record AI debt supply is overwhelming demand, and new issue concessions are already at elevated levels. Investors should prepare for further spread widening in IG and HY, particularly in AI-related names.
- Equity volatility may persist: The election outcome introduces policy uncertainty around data center construction, with potential moratoriums affecting up to 45% of planned U.S. data center capacity. Tech stocks could remain under pressure until policy clarity emerges.
- Watch the monetization clock: Goldman frames the race between AI monetization (which would reduce debt needs) and procurement commitments (which drive more debt). Evidence of monetization before 2028 is critical; otherwise, rating downgrades may follow.
- Private credit is the backstop—but for how long? With $4.6 trillion in dry powder, private markets have provided over $225 billion in data center financing since early 2025. But private credit stepping in as “lender of last resort” just as its own default rate hits record highs is a delicate timing.
