AI buildout and M&A set to lift investment-grade bond supply next year
Expect a heavier investment-grade calendar next year. Big tech's AI buildout and a swelling M&A backlog are pushing issuers toward public bonds, according to senior bankers speaking at the Reuters NEXT conference in New York.
Barclays' global head of debt capital markets, Meghan Graper, said funding needs for the top five U.S. tech firms could approach $100 billion in 2026. Since September, four major hyperscalers have already tapped public markets for nearly $90 billion to fund AI-ready data centers.
Why supply is climbing
AI infrastructure demands heavy, upfront capital-servers, energy, land, and connectivity-which tilts treasurers toward long-dated, fixed-rate funding. Cash-rich tech names are leaning on bonds to preserve liquidity and keep optionality for buybacks and M&A.
The primary read-through: more large prints, more multi-tranche deals, and steady taps from repeat issuers as capex scales.
M&A deal flow is back
Announced M&A needing funding among investment-grade companies stands near $175 billion, more than double the $75 billion a year ago. Morgan Stanley's Anish Shah flagged renewed sponsor activity as the IPO window reopens, noting their sponsor IPO backlog is at a post-COVID high and that credible dual-track processes are back.
He also expects higher volume in large corporate deals next year, which typically come with bridges and swift bond take-outs once markets are open.
Risk lens: investors are focused on assets and cash flows
Bankers on the panel said investors are not fixated on circular financing concerns in AI. JPMorgan's Marc Baigneres underscored that credit is tied to hard assets-the data centers-"in the middle of the desert somewhere."
Shah added that issuers have diversified cash flows, and AI investments represent small slices of their overall businesses. The takeaway: limited concern about systemic risk from the current wave of issuance.
What this means for finance teams
- Issuers: Pre-clear documentation and be ready to move fast. Windows have been short; speed and flexibility matter for landing size and pricing.
- Funding mix: Balance near-term capex with staged issuance. Consider layering tenors to manage duration and refinancing risk.
- M&A: Line up committed financing early. Expect bridges to convert to bonds quickly once approvals hit; keep swap and tender options ready.
- Investors: Prepare for heavier supply from high-quality tech and acquirers. Watch for concessions on jumbo deals and relative value in longer tenors.
- Sponsors: With the IPO path reopening, dual-track strategies improve execution. Be prepared to pivot between ECM and DCM based on timing and valuations.
Numbers to keep on your desk
- ~$90 billion: Public bond issuance since September by four major hyperscalers funding AI data centers.
- $175 billion: Announced investment-grade M&A that may need financing, up from ~$75 billion a year ago.
- ~$100 billion: Potential 2026 funding needs for the top five U.S. tech firms, per Barclays.
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