Amazon took the unusual step of tapping the bond market on Tuesday in the middle of an earnings blackout period – choosing to launch a US$25bn debt sale on the back of stale numbers rather than wait another three weeks for the release of second-quarter numbers.
The curious timing of the deal comes against the backdrop of a wider selloff in AI-related debt, with investors seemingly reassessing their exposure to the sector and many recent transactions – including last month’s debut deal from SpaceX – now trading entirely underwater.
Even some of the banks on the Amazon deal were thrown by the timing. Researchers at Bank of America, one of the deal’s joint bookrunners, called the bond sale a “surprise” that injected “uncertainty” into the outlook for AI supply. A banker at another lead said the company had launched the deal to avoid being at the “back of a queue” once earnings come out.
Whatever its intentions, Amazon’s decision to tap the market in the middle of a blackout period has revived concerns about the coming volume of AI issuance – and whether higher-than-expected supply might be a sign that the sums being spent developing the technology might not pay off.
Tuesday’s deal was one of the weakest since the current wave of AI debt issuance began nine months ago. BofA said the new issue concessions and subsequent market performance were the worst for a hyperscaler since October. It was also less than two times covered, the weakest order book in this current wave.
The lead banker said that, compared with the huge single orders on previous technology-related deals, the “individual lines of the top 50 US investors were quite modest” on Amazon, though he pointed out that the books overall were close to US$50bn (see separate story).
Tom Murphy, senior portfolio manager at Columbia Threadneedle Investments, said the weak reception was less about the quantum of debt the hyperscalers are taking on and more about the speed at which they are doing so.
“This is not about people’s concerns about leverage creep for these individual entities,” he said. “It is about indigestion and individual issuer limits that investors could be running up against. That is really the bigger issue.”
Secondary weakness
Secondary markets are also showing signs of weakness, with many recent deals now trading underwater. By Thursday, investors who bought into last month’s US$25bn bond market debut from SpaceX were sitting on almost US$700m of paper losses.
Investors say the market is struggling to absorb supply – with concerns mounting about the volume that is yet to come. AI companies have sold US$270bn of investment-grade debt in the US dollar market this year, already double the total for the whole of 2025.
Amazon has been a particularly heavy issuer, printing US$91bn-equivalent across various currencies over the last four months alone at an unprecedented rate. It is easily the largest corporate issuer on the planet and is now selling more debt than many financial institutions – and governments.
“There is a tipping point where if we get flooded with too much of this type of paper, the window will just close,” said Collin Supple, a credit analyst at PPM America. “The Amazon deal came with a lot of concession and backed up the entire high-grade TMT market when they announced it.
“The bargaining power has swung back slightly in favour of the buyside,” he said. “The paper will get bought but investors are now concerned enough to be demanding real concessions from the issuer.”
Market jitters
Jitters are also beginning to appear elsewhere. Equity markets have been a crucial source of capital for AI companies, with Oracle raising US$25bn, Alphabet US$90bn and SpaceX US$86.2bn this year. OpenAI has sold US$122bn of stock and Anthropic US$65bn in recent months.
But price action has been weaker in the last few weeks. Shares in Amazon, Alphabet and Meta Platforms have all fallen by about 10% over the past two months. After all the hype around its IPO last month, SpaceX has since seen its share price fall by more than 25% from the highs it touched in the days following its listing, though its stock is still trading well above the IPO price.
The structured finance market is also showing some signs of nervousness. Two recent commercial mortgage-backed securities deals linked to data centres being built by Blackstone and CyrusOne saw pushback from investors, illustrative of mounting concern about the sector.
“We’ve generally avoided investment-grade data centre deals. Because of their longer duration, there is greater opportunity for market sentiment to shift and construction risk to arise,” said Tony Trzcinka, investment-grade portfolio manager at Impax Asset Management.
A number of factors are driving that move. One is a trend among non-AI companies to finetune their spending on the technology. The CEOs of defence contractor Palantir and cryptocurrency exchange Coinbase have both talked about shifting spending to cheaper, open-source models.
That’s sparked concerns that the huge bets – and gargantuan capital expenditure programmes – made by the hyperscalers might not pay off. Meta has announced plans to sell some of its data centre capacity to third parties, fuelling talk that demand is weakening for its AI products.
Worried tones
Central bankers are also speaking in worried tones. The Bank for International Settlements has talked about market “exuberance” around AI while the Bank of England has flagged “unprecedented” increases in AI company debt and called some AI stock market valuations “stretched”.
On Thursday, global asset manager Apollo added to the gloom with a note titled “A Slower AI Payoff Would Be Everyone’s Problem”, warning that lacklustre revenue growth might eat further into hyperscaler cashflows, forcing them to rely more heavily on debt – leading to possible downgrades.
“The bottom line is that AI has been the one thing holding up both the economy and markets,” Apollo’s chief economist Torsten Slok wrote. “With so much riding on so few names, a slower payoff wouldn’t just be a sector problem, it would risk tipping the economy into recession and the S&P 500 into a correction.”
Not everyone is gloomy, however. Following the end of the quiet period following the SpaceX IPO, banks and brokerages have begun putting out their price targets, with the median at US$249, more than 60% above the current price, and Raymond James targeting US$800.
Additional reporting by Sudip Roy, Victoria Zhuang and Richard Leong