Bank of America’s lead investment strategist says that bonds issued by large technology companies currently represent a better investment opportunity than their equities. The strategist points to heavy borrowing to build AI-related infrastructure as the main driver: rising debt levels have pushed bond yields higher while stock prices have suffered significant declines.
How much capital has been raised?
According to the analysis, major cloud providers have raised roughly $271 billion so far this year through bond and equity issuances to finance AI and other investments. At the same time, several companies reported substantially negative free cash flow in their latest quarterly results.
Impact on yields and equity prices
Higher leverage has driven down bond prices and, consequently, increased yields. Even investment-grade bonds from large tech names are now offering about 6–8 percent yields. On the equity side, share prices fell sharply during the week after quarterly reports revealed larger-than-expected negative free cash flow for several firms.
Concrete examples cited in the analysis:
- Amazon maintained a $220 billion capex forecast while recording $42.4 billion of capital outflows over the past 12 months.
- Alphabet reported $9.07 billion of negative free cash flow and expects full-year capital expenditures of $195–205 billion.
Funding choices: bonds vs. equity
To meet financing needs, Microsoft has entered the bond market and announced a $25 billion new issuance to fund AI-related development. By contrast, Meta Platforms — owner of Instagram and WhatsApp — turned to the equity market, saying last week it intends to raise $95 billion through new share sales.
Bank of America’s strategist interprets Meta’s move as an indication that companies are starting to consider bond investors more seriously. However, increased equity issuance could curtail large-scale share buyback programs, which would be disadvantageous for existing shareholders.
Why this matters for investors
The strategist argues that the period of bond underperformance relative to equities for AI-related issuers may be over, and current yield levels make the bonds of the largest technology firms — the so-called "Magnificent Seven" — particularly appealing. Rising yields and shifting corporate financing strategies could prompt investors to reassess allocations between bond and equity markets.
Cover image: illustration. An AI assistant helped prepare this article; the final content was edited and verified by our reporter.
