US Interest Rates Soar to 20-Year High... Cause: Amazon and Google-Led 'AI Debt Bomb'

▲ Amazon (AMZN), Alphabet (GOOGL), US, Treasury Yields, Artificial Intelligence (AI)/AI Generated Image

The surge in artificial intelligence debt, spearheaded by Amazon (AMZN) and Alphabet (GOOGL), has been identified as a factor pushing up US long-term interest rates. The 30-year Treasury yield has soared to its highest level in 20 years.

According to Benzinga on August 3 (local time), Torsten Slok, Chief Economist at Apollo Global, cited bond issuance by mega-cap tech companies as one of the top three reasons for rising long-term interest rates. The other factors are inflation and the fiscal deficit. Amazon and Alphabet led the expansion of borrowing over the past 12 months. Meta Platforms (META) and Oracle (ORCL) were also named among major bond issuers.

Palumbo Wealth Management described the funds flooding into the bond market recently as an 'AI debt tsunami.' According to Morgan Stanley, investment-grade AI-related bond issuance reached $270 billion by early July. This amount is more than double the total issuance projected for all of 2025. Off-balance-sheet debt, including sale-leaseback agreements for data centers, has also swelled to $1.65 trillion.

Goldman Sachs analyzed that the debt ratio of mega-cap tech companies doubled from approximately 0.9x to 1.8x in about six months. The bond market's burden threshold also decreased from $75 billion to $25 billion. Credit default swap (CDS) spreads for major tech companies have also widened significantly. This means investors are beginning to doubt whether new debt can be covered solely by AI investment returns.

Microsoft (MSFT) and Alphabet were evaluated as companies maintaining relatively stable financial structures. Goldman Sachs diagnosed that these two companies could withstand their debt burden based on robust cash flows. In contrast, many large tech companies, excluding Microsoft, showed that their AI investment amounts exceeded their free cash flow.

Capital expenditures for mega-cap tech companies are projected to be between $650 billion and $800 billion this year. By 2027, it could exceed $1 trillion. Amazon, Alphabet, Meta, Oracle, Microsoft, Nvidia (NVDA), and SpaceX (SPCX) issued $244 billion in bonds this year. This is 14 times the amount of 2024 and more than double last year's total. Goldman Sachs projects that mega-cap tech companies' AI infrastructure investments will reach $5.8 trillion by 2030.

[Article Key Summary]

-Large-scale bond issuance led by Amazon and Alphabet has been identified as a factor contributing to the rise in US 30-year Treasury yields.

-Investment-grade AI-related bond issuance reached $270 billion by early July, more than double the total for 2025.

-Mega-cap tech companies' AI infrastructure investments are projected to reach $5.8 trillion by 2030.

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