In a significant shift for global corporate bond markets, major technology companies such as Alphabet, the parent company of Google, and Amazon are issuing substantial debt outside the United States. This trend is particularly evident in Europe, Japan, and Switzerland, where these companies are leveraging smaller markets to finance their ambitious investments in AI infrastructure, including data centers.

Expanding Beyond U.S. Borders

Alphabet and Amazon have set new records with their bond issuances in various currencies, including yen, Canadian dollars, Swiss francs, and sterling. These moves are part of a strategic effort to diversify funding sources and hedge against currency risks associated with their global operations. By tapping into these markets, they are also benefiting from relatively lower borrowing costs compared to the U.S. market.

According to Giulio Baratta, co-head of investment-grade finance at BNP Paribas, the rapid pace of investment by these companies suggests they could soon become some of the largest issuers globally, regardless of currency. In Europe alone, Alphabet and Amazon have contributed to a record borrowing level of over 60 billion euros by non-financial U.S. firms this year.

Impact on Global Markets

The involvement of hyperscalers, or Big Tech companies, in international bond markets is driving significant changes. Morgan Stanley predicts that these companies will borrow around 50 billion euros in euro debt this year, potentially positioning the U.S. as the euro zone’s largest source of corporate debt, surpassing France.

John Servidea, global co-head of investment grade finance at JPMorgan, notes that these markets now offer more depth and opportunities for large capital raising than ever before. This trend is not limited to hyperscalers, as other U.S. companies are also exploring these international markets more seriously.

Investors are keen to gain exposure to the AI sector through these international bond markets, where technology companies previously had a limited presence. This growing interest is evident in the euro deals from hyperscalers, as highlighted by Nicolas Forest, chief investment officer at Candriam.

Future Prospects

As technology companies increase their presence in global bond markets, these markets will become more sensitive to developments in the tech sector. While this offers opportunities for growth, it also introduces potential volatility, especially if challenges arise in the AI domain. David Zahn, head of European fixed income at Franklin Templeton, cautions that any issues with AI could lead to increased market volatility.

Overall, the expansion of Big Tech into international bond markets marks a significant evolution in corporate finance, reflecting the growing importance of AI and the strategic financial maneuvers of these leading companies.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.