Big Tech’s Debt Binge Raises Risk in Race to Create an AI World

Core Insights - Equity investors are increasingly worried about the leverage that Big Tech is using to develop its artificial intelligence infrastructure, amid rising concerns of a potential bubble in the industry [1] - Major technology companies are raising record amounts of debt to fund AI initiatives, which marks a shift from previous practices where companies utilized their cash reserves for capital expenditures [2] - The trend of increased leverage and complex financing deals introduces new risks that were not present before [2] Industry Dynamics - The AI spending landscape has evolved, with spending now coming from companies with weaker balance sheets, such as Oracle and CoreWeave, indicating a shift in the tech industry's risk profile [5][6] - The interconnectedness of these companies creates systemic risk, as highlighted by the expansion of the ecosystem to include firms with more debt and circular revenue relationships [6] - Valuations among major tech companies have declined due to investor unease, with the forward 12-month price-to-earnings ratio of the Bloomberg Magnificent 7 Index falling to its lowest in over two months [6] Financial Metrics - The five largest spenders on AI—Amazon, Alphabet, Microsoft, Meta, and Oracle—have collectively raised a record $108 billion in debt in 2025, which is more than three times the average amount raised over the previous nine years [7]