Debt linked to artificial intelligence has reached US$1.2 trillion (HK$9.3 trillion), marking the largest segment in the US investment-grade market, according to JP Morgan Chase.
The share of AI companies in the US high-grade bond market rose from 11.5 percent in 2020 to the current 14 percent, surpassing the US banking sector, which is the largest segment in the JPMorgan US Liquid Index, with a proportion of 11.7 percent, JP Morgan said.
It also found that a total of 75 companies in tech, utilities, and capital goods are closely related to AI-linked debt, including Oracle, Apple, and Duke Energy. Many of these firms frequently issue debts, benefiting from ample cash reserves and low net debt ratios.
JP Morgan said the bond spreads for these AI firms were 74 basis points, 10 basis points narrower than the overall JULI index, adding that the narrow spreads are well-justified due to the high-quality issuers involved.
Since ChatGPT led a rapid surge in AI stocks from three years ago, some investors worried that a downturn in the stock market could impact the credit market, while JP Morgan noted that such concerns are fundamentally unfounded.
However, it added that a sell-off in AI-related stocks would affect the credit market, as these companies' bond spreads were already narrow.
If AI-related companies use substantial cash on capital expenditures or mergers and acquisitions before servicing their debt, the risk will arise, JP Morgan warned.
