Amazon's US$25 billion bond offering has put pressure on bonds issued by major U.S. technology companies. As investors sold existing holdings to free up capital for the new issuance, bonds from hyperscale cloud providers—including Amazon, Alphabet (Google), NVIDIA, Meta, Oracle, and SpaceX—came under broad selling pressure on Tuesday. The move has renewed concerns that continued expansion in AI infrastructure investment will require even more debt financing in the years ahead.

Amazon's latest offering consists of eight tranches across different maturities, marking another major debt transaction following the company's US$37 billion financing completed in March this year. Market data showed that peak investor demand reached approximately US$62 billion, only about half of the subscription level seen during the March offering, suggesting that investor enthusiasm for repeated fundraising by large technology companies may be moderating.

The new issuance also weighed on the secondary market, making the technology sector one of the weakest-performing segments of the U.S. investment-grade corporate bond market on the day. Despite the price weakness, the underlying credit fundamentals of large technology companies remain solid, and the decline does not indicate any deterioration in their credit quality.

The selling of existing hyperscaler bonds is essentially similar to selling one property in order to purchase another—it allows investors to free up capital to participate in the new bond offering. Unlike the property market, however, the supply of bonds issued by these technology companies is already abundant, and many investment portfolios are approaching their desired allocation limits.

As AI infrastructure investment continues to accelerate, investors are increasingly focused on whether technology giants will need to continue expanding their borrowing over the coming years to finance data centre construction and computing infrastructure. Given expectations for continued growth in bond supply, we currently maintain an underweight view on the technology sector and hyperscale cloud providers.

When bond supply continues to rise, issuers typically need to offer higher yields to attract investors and secure additional balance sheet capacity. Amazon's latest issuance came with a new issue concession of approximately 10 to 15 basis points relative to its outstanding bonds. Looking ahead, capital expenditure by major technology companies could continue to exceed market expectations, leading to further bond issuance.

Market Insight:

Unless the market sees more technology companies financing capital expenditure through large-scale equity offerings, corporate bond credit spreads are likely to remain under pressure. In comparison, the market remains more constructive on certain data centre project financing bonds, as these securities generally offer investors more attractive credit spread compensation.