Big Tech used to fund growth from its own cash. That era is ending. The biggest AI spenders now borrow in bond markets at a scale we have not seen before.
Fitch Ratings calls AI both the main growth driver and a key downside risk for the US economy. Both can be true at once.
This article shows where the stress sits, what Fitch’s recession scenario assumes, and what it means for Indian investors.
Disclaimer:
This article is for education only. It is not investment advice. Check current data and speak to a SEBI-registered adviser before you invest.
The Report Table
| Signal | Latest reading | What it tells you |
|---|---|---|
| US investment-grade (IG) spread | 0.82% (8 Oct) | Strong borrowers still borrow cheaply |
| US high-yield spread | 3.40% (22 Oct) | Junk bonds look calm on average |
| CCC spread | 13.40% (22 Oct) | The weakest borrowers are under real pressure |
| Fitch private credit default rate | 6.3%, record | Stress is showing outside public markets |
Sources: FRED/ICE BofA, YCharts, Fitch via investingLive.
The Borrowing Boom in Numbers
Amazon, Alphabet, Meta, Microsoft and Oracle issued $121 billion in US corporate bonds in 2025. From 2020 to 2024, they averaged $28 billion a year. That is more than four times the old pace.
Oracle sold $18 billion in September 2025. Meta followed in October with a $30 billion deal, the largest non-M&A high-grade bond sale on record.
Then 2026 started. In March, Bank of America raised its 2026 hyperscaler issuance forecast from $140 billion to $175 billion. The year has already moved past that forecast on some counts.
| Source | Figure | Note |
|---|---|---|
| BofA | $121B in 2025 | Big Five, US bonds |
| Vanguard | ~$132B year to date | Through 31 July |
| Bloomberg-based tally | ~$159B year to date | Reported later |
The totals differ because each source counts different currencies, issuers and dates. Treat any single figure with care. The direction is not in doubt.
The money funds a huge capex bill. Microsoft, Meta, Amazon and Alphabet told investors they will spend about $700 billion on capex in 2026, double 2025. UBS says that spending will eat close to 100% of operating cash flow, against a 10-year average of 40%. When cash runs short, bonds fill the gap.
A Credit Market Split in Two
Fitch describes an uneven picture. Investment-grade spreads stay near multi-year lows, while CCC yields have widened by about 480 basis points this year.
Think of two rooms in one house. In the first room, big, cash-rich companies borrow with ease. In the second, weak borrowers face higher rates and fewer lenders.
Room one: strong borrowers. Investors lined up for even the long-dated hyperscaler bonds. Spreads moved a little, not a lot. Oracle is the exception. The cost to insure Oracle’s debt has more than tripled since September 2025.
Room two: weak borrowers. The CCC spread sat near 10.5% in early September. It reached 13.4% by 22 October. That is a sharp move in seven weeks.
Not every CCC problem is an AI problem
Here is a point many headlines skip. Janus Henderson argues the CCC stress is narrower than it looks. CCC bonds make up only 8.6% of the US high-yield index, and about 20% of them trade at distressed levels of $60 or below. Cable, satellite and wireline names drive much of the widening.
So the CCC jump signals pain in specific sectors. It does not yet prove AI is breaking the system. Keep that difference clear when you read alarming charts.
Private Credit: Where the Cracks Show First
Fitch’s US private credit default rate hit a record 6.3% in the 12 months to September. The same report expects leveraged loan defaults to land near the low end of a 4.5% to 5.0% year-end range.
Private credit is lending that happens outside public bond markets. Few people see these loans, and prices update slowly. Problems tend to surface late. A record default rate is an early warning, not a crisis.
Fitch’s Recession Scenario
Fitch ran a “what-if” test. The assumptions are harsh.
| Assumption | Fitch scenario |
|---|---|
| US equity prices | Fall 35% |
| Non-US equity prices | Fall 15% |
| Private investment | Extra confidence shock |
| US GDP in 2027 | Down 0.6% |
| Global growth in 2027 | Below 1% |
| Fed response | Cuts rates by 325 basis points |
Source: Fitch Global Economic Outlook, September 2026, via ANI.
Fitch says the scenario would push the US into recession and drag global growth close to stagnation in per-capita terms. Remember the label: this is a stress test, not a forecast. Fitch’s base case is a resilient US economy. It lifted its 2026 and 2027 US growth forecasts to 2.1%.
The Tipping Point: When Pricing Power Fades
What could turn the boom into a bust? Fitch points to pricing. Intensifying competition and cheaper open-weight models could weaken the pricing power of AI service providers. That could prompt a rethink of hyperscaler capex plans over the next one to three years.
The chain is simple:
- Cheaper models push AI prices down.
- Lower prices squeeze the return on each data centre.
- Weaker returns make boards cut capex.
- Less capex hurts suppliers, builders and lenders tied to the buildout.
Fitch also tested the credit side. Its AI stress test covered three adverse scenarios: disruption, over-investment and asset impairment. It found broad resilience, with material risks concentrated in services, data centres, and telecommunications, media and technology.
| Fitch scenario | What goes wrong |
|---|---|
| Disruption | AI erodes incumbents’ positions faster than they adapt |
| Over-investment | AI earns less than hoped and funding for capex shrinks |
| Asset impairment | Loans to AI-exposed firms go bad |
The Part Most Headlines Miss
Most coverage asks whether Big Tech can pay its bills. It almost certainly can. Their cash flows are huge.
The better question is who sits downstream. Data-centre developers, neocloud providers and contractors depend on hyperscaler demand. They borrow on thinner margins and often in private markets. If a giant trims its plans by even 10%, the giant shrugs. The smaller firm may not.
There is a second risk: supply. AI-related debt had already grown to 14% of the investment-grade market by October 2025, passing US banks as its biggest sector. Passive bond funds must buy these bonds automatically. That works smoothly until it doesn’t. A bad quarter at one issuer can then move a large chunk of many portfolios at once.
The India Angle
Indian investors feel this through three doors.
Nasdaq and US tech funds. These funds hold the same hyperscalers that now borrow heavily. If a credit scare hits, equity prices can fall fast, as Fitch’s 35% shock shows. Check how much of your fund sits in the top five names.
IT stocks. Indian IT has a double exposure. AI disruption fears already hit the sector this year. A US slowdown would cut client tech budgets too.
FII flows. Foreign investors have sold Indian equities through much of 2026. A US credit scare often pulls money out of emerging markets first. A rupee that stays weak adds to the pressure.
What to Watch Next
- CCC spreads. A move well above 13.4% would show the stress spreading.
- IG spreads. The 0.82% reading is the calm benchmark. A sudden jump would change the story.
- Hyperscaler capex guidance. Any cut is the clearest warning that Fitch’s tipping point is near.
- New deal concessions. Bigger discounts on new bonds mean demand is thinning.
- The Fed in December. Fitch expects a hike to 4.25%. Higher rates make refinancing harder for weak borrowers.
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