• Apollo Chief Economist Torsten Slok warns that massive debt issuance by AI hyperscalers could divert investor demand away from U.S. Treasurys and other credit markets.
  • Slok questions who will absorb roughly $700 billion of new AI-related bond issuance, suggesting it could crowd out other fixed-income investments.
  • The warning highlights a shift in capital markets as AI infrastructure financing reshapes demand-supply dynamics.

Apollo Global Management (APO)'s chief economist, Torsten Slok, issued a stark warning about the growing wave of debt issuance by AI hyperscalers, arguing it could crowd out traditional fixed-income assets like U.S. Treasurys. Speaking at a conference, Slok highlighted that the massive borrowing by tech giants to fund AI infrastructure is diverting investor demand away from government bonds and other credit markets.

"Who will absorb roughly $700 billion of new AI-related bond issuance?" Slok asked, emphasizing the risk that these large-scale debt offerings could push up yields on Treasuries and squeeze other corporate borrowers. The warning comes as AI hyperscalers—including major cloud and data-center operators—ramp up capital spending, financing their expansion through substantial bond issuances.

Bloomberg and Bank of America (MS) estimate total investment-grade debt issuance could reach $1.6 to $2.25 trillion in 2026, with AI-driven debt making up a significant share. Slok's comments suggest that the marginal buyer for fixed-income assets may be shifting away from traditional Treasuries toward higher-yielding AI debt, potentially reshaping credit markets.

"This is not just an equity story anymore; AI is now a credit market phenomenon," Slok said, noting that the trend reflects a broader transformation in capital markets. He cautioned that if demand for AI debt continues to grow, it could lead to a repricing of risk across fixed-income assets, with implications for pension funds, insurance companies, and other yield-seeking investors.

Apollo's analysis adds to growing concerns about the sustainability of the AI debt binge, with some market observers warning of a potential "debt cliff" as refinancing windows approach. The firm's warning underscores the need for investors to reassess risk in an era where AI infrastructure spending is reshaping the landscape of investment-grade and high-yield debt.

(Updates with additional context on debt issuance estimates.)