What Meta, Alphabet and Amazon are doing in the most conservative fixed income funds on the market

Fixed income has never wanted to know anything about Silicon Valley. Security has always taken precedence over profitability. Public debt, emissions from electricity companies, pharmaceutical companies, banks… and little else. A land designed for those looking for stability, modest coupons and just the right amount of scares. Innovation barely had a place there. The technological ones were something else. Risk, volatility, disruption. Everything that a conservative investor preferred to keep away.

And yet, the bonds of Meta, Amazon or Alphabet have begun to sneak into the most conservative portfolios. They are beginning to rub shoulders with traditional bonds and private issues of much more classic companies. Not as a specific eccentricity, but as part of a movement that is growing. And the most striking thing is not that these companies are issuing debt. What is relevant are the profound changes that these additions can cause in the classic and traditional bond portfolios.

Several leading analysts have already turned on the warning lights. Robert Cohen, of DoubleLine Capital, warns that the avalanche of technological issues linked to AI can alter the very structure of the IG (investment grade or maximum rating) market. Robert Schiffman, from Bloomberg Intelligence, is even more blunt. What we are seeing, he says, “is just the beginning of a financing cycle that could reconfigure the universe of high-quality issuers.” What exactly do they refer to? What do they fear?

Structural change in the composition of fixed income funds?

What they mean is that the high quality debt market works in a very mechanical way. The more debt a company issues, the more space it occupies within the major indices that most fixed-income funds follow. For years, technology companies barely weighed in those indices because they did not need to take on debt.

But now the situation changes suddenly. Yes Meta, Amazon or Alphabet They issue tens of billions of dollars each year to fund AI infrastructureyour weight in the IG universe increases automatically. And, what happens? That the funds that replicate these indices, or that use them as a reference, are pushed to buy more technology bonds, even if they had not done so voluntarily.

That pressure is what worries some analysts. They fear that the composition of the market will end up turning towards companies that were not previously part of the stable core of credit and that the technology sector will go from being a marginal player to occupying a dominant position in the most conservative portfolios.

If this is going to cause a structural change in the composition of fixed income funds, it is too early to say. In any case the process continues. According to Morningstar data, positions in technology debt within IG funds They have grown 18% in the last year. And although its weight is still limited, the trend is clear. Enough so that the credit teams of firms like JP Morgan or Morgan Stanley have begun to monitor their exposure to technology bonds with much more precise attention than before. Now, why are these companies issuing so much debt? The answer lies in the race for AI.

The race for AI

Big technology companies are investing enormous amounts in infrastructure. Data centers, chips, undersea cables, supercomputers, entire networks designed to process and scale AI models. A physical and technological expansion that requires billions in capital.

Only Meta, this year, could exceed $40 billion in investment of this type. Amazon, Alphabet, Apple, Oracle and Broadcom follow closely. Spending is not only growing, it is accelerating. And although these companies generate a huge amount of operating cash, they are not willing to consume it all. That’s why they are turning to something that until now they barely touched. The debt.

According to a recent report from Morgan Stanley, so-called “hyperscalers” will need about $2.9 trillion to finance AI infrastructure through 2028. Of that figure, only $1.4 trillion will be able to be covered by cash flows. The rest, about 1.5 trillion, will have to come from debt issues, private financing and off-balance sheet structures.

In just a few months, the sector has placed more than $200 billion in corporate debt, with Meta, Amazon and Alphabet leading the way. Goal issued 8.5 billion in Augustan operation that was closed without any problems, even in the middle of the Nasdaq correction. Amazon is already preparing an issue close to 15,000 million. Alphabet has gone to the markets with more than 17,000 million and another additional placement in euros.

They don’t do it out of necessity, but out of opportunity. Rates have fallen slightly, appetite for high-quality debt is high and institutional investors are looking for issuers with strong balance sheets and revenue visibility.

BlackRock mentioned this in an internal memo at the beginning of the year. The big tech companies are entering the radar of its fixed income division. Morgan Stanley included it in its third-quarter corporate credit report. The credit quality of these companies, in many cases, is comparable to that of consolidated pharmaceutical or electrical companies.

In this environment, managers begin to move. Vanguard has incorporated tranches of Apple and Microsoft debt into some of its intermediate duration funds. Fidelity evaluates Amazon bonds for its global corporate credit fund. And although its weight is still modest, the movement has already begun.

The question is not whether Big Tech will be able to place its debt without problems. That already happens. The question is what happens next. What happens when these bonuses begin to alter, even if slowly, the internal balance of the large conservative funds. For now, the flow is constant