The large American technology companies, known as hyperscalers, such as Amazon, Microsoft, Google, Meta and Oracle, are increasingly turning to the Eurozone corporate bond market to obtain financing for artificial intelligence investments. This conclusion comes from an article published by the European Central Bank in its annual review, which analyzes the growing presence of these companies in the European market.
ECB economists warn that this trend may raise borrowing costs on Eurozone sovereign bonds, representing a contagion risk. The effect would be transmitted through three main channels: the large volume of new bonds issued by technology companies may drive investors away from sovereign bonds if they anticipate higher yields; investors may reallocate their portfolios to American technology company debt; and bond index dynamics may amplify upward yield pressure.
Eurozone investors' exposure to hyperscaler debt is still small but is growing rapidly due to strong demand from pension funds and insurers, which are seeking high-quality, long-term assets. For these investors, technology company debt may seem like a viable alternative to some bonds considered safe havens.
ECB economists forecast that hyperscalers will need more than one trillion dollars in capital investments by 2028, an amount equivalent to 3% of current annual US Gross Domestic Product. Since these investments are too large to be financed solely with internal cash flows, companies are increasingly turning to bond issuance, which fuels concerns about the impact on sovereign debt markets.
