Citi says AI exposure is spreading across the US corporate bond market

In short: Citigroup says AI-related risk is no longer limited to “tech” companies, and it is spreading across much of the US corporate bond market.

What's going on

Citigroup credit analyst Daniel Sorid argues that sector labels like “technology” are becoming less useful for investors who buy corporate bonds. A corporate bond is basically an IOU, where a company borrows money and promises to pay it back with interest.

Citi estimates that at least 40 per cent of US investment grade corporate debt has some revenue link to AI. Investment grade means bonds from companies seen as relatively likely to pay their debts. Citi says this means many investors may have more AI exposure than they realize, even if they do not hold many “tech sector” bonds.

Citi also points to heavy borrowing by the biggest cloud computing companies, often called hyperscalers (think of them as the large landlords of the internet’s rented computing power). Since August, US investment grade tech companies have issued $362bn in bonds, according to Citi. Citi says hyperscalers now make up about 40 per cent of the tech investment grade bond universe by face value, up from 28 per cent in August.

The AI buildout is also pulling in non-tech firms, including power utilities funding grid upgrades. Citi warns that if AI power needs are overestimated, some of that long-lived infrastructure spending could look like a mistake later.

What to watch

Citi’s main message is that it is getting harder to avoid AI-related ups and downs through simple diversification. Watch whether AI spending slows, and whether bond investors demand higher interest rates from companies that are borrowing heavily to keep up.

Source: Financial Times