The AI Boom Has Become A Bond Market Story

Big Tech is borrowing to build. Here's who gets paid while that debt piles up.  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Read online       Unsubscribe       The AI Boom Has Become A Bond Market Story The AI buildout used to run on cash flow. Now it runs on bonds, and that changes who gets paid while yields stay high. Here's how the borrowing binge reaches your portfolio and where to stand. Double Yield (Sponsored) Record Profits, Raised Guidance, ~10% Yield — All Under $4 A documentary streamer in our free report just posted record net income of $8.9 million, grew revenue 22% year over year, and raised full-year guidance to $77 to $82 million. AI labs are licensing its library. It trades at $3.55 and yields about 10%. Get the free report now (By clicking this link you agree to receive emails from Trading Tips and our affiliates. You can opt out at any time. - Privacy Policy) Something shifted this quarter, and it isn't the headline you keep reading. The companies building AI stopped paying for it out of pocket and started borrowing for it, just as the 10-year sits near its highest level since 2002. That collision matters more for your money than another round of oil headlines. When the biggest borrowers in the market are tech giants racing each other, the cost of capital for everyone else moves with them. From Cash Flow To Credit For most of this cycle, the hyperscalers paid for data centers out of free cash flow. That cushion is getting thinner. Wall Street now tracks Big Tech's debt growth alongside its capex, and SpaceX is reportedly lining up about $40 billion of financing for its own AI push. Ray Dalio recently warned that heavy AI borrowing plus rising rates is pushing the boom toward a breaking point. You don't have to agree with him to see the mechanism: every new bond the builders sell competes with Treasuries for the same buyers. That's the piece most investors miss. The long end isn't just reacting to inflation and the Fed. It's absorbing a wave of private-sector supply on top of heavy government borrowing. Would you rather the Fed prioritize fighting inflation even if it causes a recession, or prioritize jobs even if inflation runs hot? Fight inflation, even into a recession Prioritize jobs, let inflation run hot Split the difference, accept a bit of both Neither -- target a fixed rate rule, no discretion at all Early Signal Watch (Sponsored) Most people notice a move after it's already underway. But the early phase tends to look different, quieter, less defined, and easy to miss. That's where the groundwork usually starts to take shape. Right now, we're seeing a few small-cap names across AI, energy, and emerging tech begin to develop those early characteristics. Not from headlines — but from how the structure is forming beneath the surface. View the Guide — Free Access We've broken down three profiles currently showing these early signals, along with what we're watching next. Sometimes the key isn't what's already visible, it's what's just starting to form. (By clicking the link above, you agree to receive emails from FierceInvestor. You can opt out at any time. - Privacy Policy) *We encourage readers to perform their own research and due diligence on any information we provide. Why The Bond Market Cares Three forces are stacking on the long end at once. The Fed is still hiking, with the funds rate at 3.75% to 4.00% after September's move. Oil near triple digits keeps inflation expectations from settling. And AI issuance adds fresh supply that needs buyers. The AI piece is the new one. Data centers, power plants, and chip fabs are long-lived assets, and long-lived assets get financed with long-dated debt. That's exactly where yields have climbed most, with the 30-year near its highest level since 2002. Fiscal spending hasn't slowed into the midterms either. Put private and public borrowing together and the long end has a supply problem that rate cuts can't fix, because no cuts are coming. Hidden Tax Breaks (Sponsored) 3 Overlooked Deductions to Help Potentially Minimize Capital Gains Tax Capital gains taxes may quietly reduce more of your investment returns than you realize. But the tax code includes several strategies that may help reduce that bill. Three often-overlooked areas include investment-related expenses, cost basis adjustments, and real estate selling costs. When structured correctly, these deductions may help minimize taxable gains. Because the rules can be complex, many investors work with fiduciary financial advisors to plan tax-efficient strategies. Use SmartAsset’s free tool to find vetted financial advisors serving your area. *This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). Past performance is not a guarantee of future results. There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest. We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors. Why This Doesn't Fade Quickly If you're waiting for the 10-year to collapse back under 4%, pack a lunch. Here's what keeps the pressure on. The buildout is booked, not hypothetical. Turbine and cooling makers are quoting delivery slots far into the future, so the spending, and the financing that comes with it, is already committed. Issuance keeps coming. Each new data-center financing adds supply at the long end, and every one of them lifts the term premium a little more. Fed credibility is on the line. Waller has publicly argued for more hikes, and Warsh won't let the market front-run cuts that aren't coming. Fiscal is still expansionary. Deficit financing into a growth economy is pure fuel for the long end. And supply, not demand, is the problem. More bonds chasing the same buyers means higher yields, whatever the Fed does next. What Breaks and What Benefits From Here The reset is already rotating leadership under the surface. Long-duration growth names you own on 2028 cash flows are getting squeezed as discount rates climb. Highly levered small caps feel it first, which is why your Russell 2000 exposure is lagging. Housing-adjacent names with mortgage sensitivity are stuck in the mud. Meanwhile, anything that earns more as yields climb, like insurance float and bank reinvestment, collects more every month. And the companies selling the physical gear for the buildout get paid in cash today, whatever happens to the financing later. Your portfolio needs to look different than it did in June. Full stop. How to Actually Position Swap narrative for cash flow. Swap promises for real assets. A few specific pivots. Lean into reinvestment yield. Insurers earn more when every maturing bond on their balance sheet rolls into new paper, including all that fresh AI debt, at yields north of 5%. Own the power, not the promise. The companies building turbines and grid gear for data centers have order books that run for years, and they get paid as they ship. Back the cooling, too. The companies selling power and cooling gear to the hyperscalers get paid before the AI thesis has to prove itself. Keep a gold hedge. If the AI borrowing binge ends badly, gold is what you want to own that day. Bullion sits roughly a quarter below its high, so you're not paying a peak price for the insurance. And shorten duration where you can. If you still own long-duration growth with no earnings, trim it. Top Picks American International Group (NYSE: AIG) Cleanest reinvestment-yield story on the board. AIG runs a massive investment portfolio, and every bond that matures gets rolled into a market with the highest yields since 2002 and a fresh wave of corporate supply to choose from. Management has cleaned up the balance sheet and sold down its Corebridge stake, and capital return is a priority. Shares sit in the lower half of their 52-week range, so you're not paying up. Q3 results land November 3 after the close. What to watch: a sudden collapse in yields on a growth scare unwinds the reinvestment thesis, and a bad catastrophe quarter is always the P&C tail risk. GE Vernova (NYSE: GEV)  If AI is turning into a borrowing story, you want to own the company the borrowed money gets spent on. GE Vernova builds the gas turbines, grid equipment and wind gear that utilities and data-center developers are lining up for, and its gas turbines are effectively sold out. Data centers are only about a fifth of the order book, which is the point: demand for power is broader than the AI trade. Shares sit well under their 52-week high. It isn't cheap at around 47 times earnings, so build the position in pieces. Q3 results land October 28. What to watch: any slip in turbine deliveries, tariff costs on parts, or a hyperscaler pulling back on new sites. Vertiv Holdings (NYSE: VRT) The other side of the same trade. Vertiv sells the power infrastructure and liquid cooling that hyperscalers can't run a data center without, and it gets paid as the gear ships, not when the financing settles. Shares have pulled back hard over the past three months and sit well below the 52-week high near $380, as AI-bubble worries and a new Sell rating from GLJ Research hit the stock. BMO, by contrast, just started coverage at Outperform with a $329 target. Q3 results land October 28. What to watch: a visible hyperscaler capex slowdown, or a funding hiccup at a big AI borrower, would be the first crack. Kinross Gold (NYSE: KGC) This is your hedge if the AI borrowing binge ends badly. Kinross produces gold across the Americas and West Africa, and at current gold prices it's generating strong free cash flow and returning capital through buybacks and a dividend. The stock sits far below its 52-week high as gold has cooled from its peak. That's a cheaper entry for insurance than you've had all year. Q3 results are expected around October 28. What to watch: a sharp dollar rally or a hawkish Fed that pushes real yields higher would keep pressure on bullion. Bottom Line The Big Takeaway. The AI buildout now runs on borrowed money, and that debt is landing in a bond market already at its highest yields since 2002. What It Means. The cost of capital now depends on Big Tech's borrowing as much as on the Fed, and that keeps the long end under pressure longer than most portfolios assume. How To Play It. Own reinvestment yield (AIG), the gear the borrowed money buys (GEV, VRT), and a gold hedge (KGC). Trim long-duration growth that needs cheap money to work. Setup Scorecard Entry Zone: AIG $74 to $78, GEV $940 to $1,000, VRT $230 to $245, KGC $22 to $24. Target: AIG $87, GEV $1,150, VRT $300, KGC $29. Stop Loss: AIG below $70, GEV below $860, VRT below $200, KGC below $20. Catalyst Timeline: September CPI Oct 14, FOMC Oct 27-28, GEV, VRT, and KGC Q3 results Oct 28, AIG Q3 results Nov 3, then the midterms. Confidence Level: Medium-high. The borrowing trend is visible, and the spending is already committed. The risk is a hard landing that pulls yields down faster than new issuance pushes them up. That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next. Best Regards, —Noah Zelvis Macro Notes   Macro Notes is a publication of Elite Trade Media LLC. Disclosure: Content is for informational and entertainment purposes only and is not investment advice. Do not base investment decisions on this newsletter. 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