Wall Street discovered a new way to separate income investors from their money. Sell them bonds from companies that print cash but would rather spend yours building data centers.
The hyperscalers need funds for their AI buildout. Microsoft, Amazon, Google, Meta. These companies generate enough free cash flow to buy a small nation. They're issuing debt anyway because the cost of capital is someone else's problem and that someone is you.
The pitch works like this. Buy our bonds. Get a sweet yield. Watch us build server farms in Iowa that'll be obsolete in eighteen months. Everyone wins except the part where you're lending money to a company that could fund the entire project by not buying back stock for three weeks.
Retail investors love yield like moths love porch lights. Same outcome too. They see a five percent coupon from a tech giant and forget that corporate bonds are just unsecured promises from people who get bonuses whether you get paid back or not.
The issuance has surged. Of course it has. Why wouldn't you borrow when rates are falling and investors are so starved for yield they'd buy IOUs from a vending machine if the prospectus mentioned artificial intelligence twice.
Here's what income investors should know. You're financing NVIDIA's quarterly earnings while accepting credit risk from companies that might decide AI was a fad right after your bond settles. The yield looks sweet until you remember you're getting paid four percent to fund a capex arms race between billionaires who are spending like they're trying to bankrupt each other before the board notices.
But sure. Lock in that coupon. Nothing says financial sophistication like lending money to a company that has more cash than you'll earn in six lifetimes so they can build a smarter chatbot.
Photo by Andy Kennedy on Unsplash
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