Rising debt costs in the AI space are raising eyebrows
You’re likely aware that many technology companies are spending epic sums of money on AI these days. Take tech titans like Oracle, Alphabet, Microsoft, Amazon, and Meta that are building out massive data centers and other infrastructure to power AI. These so-called hyperscalers are on pace to invest more than $750 billion in AI this year—an amount equal to more than 2% of the U.S.’s entire annual gross domestic product.
That AI-focused spending tsunami is changing the tech landscape in ways that investors may want to pay attention to.
In the past, tech companies generally spent relatively little on physical assets such as factories, in sharp contrast to the “old economy” stocks that have been out of favor for much of the last decade. That helped keep tech firms’ borrowing costs low, with the credit spreads on their debt about 14% lower than those of the broader universe of similarly rated companies. What’s more, the firms often self-funded new spending initiatives using the ample free cash flow they generated.
That dynamic has been flipped upside down, with tech companies today largely focused on expensive physical assets that, in some ways, look decidedly old-economy. That’s forcing some hyperscalers and others to look beyond their own free cash flow to a mix of debt and equity financing from the financial markets in order to keep funding their big AI plans.
The result: Tech companies are finding it more expensive than ever to access the money they need. Tech now pays a 16% premium to issue debt relative to the broader market (see the chart).
Tech Borrowing Costs are Rising
Bloomberg, calculations by Horizon, data as of 07/24/2026
IG = Investment Grade
These fundamental shifts are prompting investors to rethink the risks among tech stocks. Last week, for example, shares of Google’s parent company Alphabet fell 7% after reporting that, for the first time since 2004, Google spent more cash during a quarter than it generated. Meanwhile, shares of SpaceX, which is building data centers, have fallen roughly 50% from their post-IPO high.
The upshot: It’s likely becoming more important to assess individual tech companies’ spending, debt levels and growth prospects rather than expect tech stocks as a group to rise and fall in lockstep. We see the ability to be highly selective about both equity and fixed income investment holdings as a significant advantage in today’s market.
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