At $1.2 Trillion, More High-Grade Debt Now Tied to AI Than Banks

Core Insights - The amount of debt tied to artificial intelligence has reached $1.2 trillion, making it the largest segment in the investment-grade market, with AI companies now comprising 14% of the high-grade market, up from 11.5% in 2020 [1][2] - Companies linked to AI have experienced significant equity valuation increases since the launch of ChatGPT, raising concerns about potential selloffs if earnings from major tech firms decline [2][5] - Analysts noted that the growth in AI-related debt is justified due to the high quality of issuers, many of which are cash-rich or not highly leveraged [3][5] Debt Market Dynamics - Oracle's recent $18 billion bond sale attracted nearly $88 billion in investor demand, indicating strong interest in AI-related debt [4] - The competition among banks and private credit firms to underwrite debt deals for large data centers highlights the growing importance of AI in the financial sector [4] Credit Market Concerns - There are concerns among credit investors regarding the potential impact of a downturn in AI stock valuations on credit markets, although analysts believe these fears are not fundamentally justified [5] - A selloff in AI-related equities could still affect credit markets due to the tight trading conditions [5] - The suggestion of using select shorts in credit default swaps (CDS) as a hedge for cross-asset portfolios indicates a strategic approach to managing potential risks [6]