AI boom built on debt, investor demand plunging, hyperscalers ramp up bond blitz (fortune.com)

The AI boom is increasingly funded by debt, as major hyperscalers channel vast sums into AI infrastructure. However, with investor appetite for this debt waning, significant implications loom for the AI/ML community. Companies like Nvidia and SpaceX have recently turned to the bond market, each issuing $25 billion in bonds, but the demand for these offerings has dropped sharply. This shift indicates a growing caution among investors, with Bank of America noting that the interest in hyperscaler bonds is less robust than it was earlier this year, suggesting a potential rise in borrowing costs and a tighter capital environment. As debt issuance soars, the competition from rising Treasury yields poses further challenges for AI companies. The emergence of lower-cost AI models from Chinese startups, such as Moonshot's Kimi K3, could also pressure U.S. firms to rethink their spending. If adoption of these cost-effective alternatives accelerates, it may lead to reduced revenues for American tech players, impacting their capital expenditures and potentially contributing to a broader economic slowdown. As AI investment has been a key driver of GDP growth, any decline could usher in a mild recession, as highlighted by Citi Research.