SKN | Bank of America Identifies Value in Technology Bonds as AI Financing Shifts Toward Credit Markets

Key Takeaways:

• Bank of America Chief Investment Strategist Michael Hartnett identifies technology-sector bonds as an overlooked opportunity following a difficult year for technology credit.
• BofA highlights a substantial increase in AI-related borrowing, with hyperscaler bond issuance reaching $182 billion in 2026, compared with $17 billion in 2024.
• The bank’s analysis points to a structural shift in corporate financing, as technology companies increase equity issuance and reduce share repurchases, potentially strengthening the position of bondholders.
• BofA estimates that AI capital expenditure could reach $1.2 trillion by 2027, intensifying the importance of balance-sheet discipline and credit-market scrutiny.

Bank of America is identifying an important shift in the financing structure of the artificial intelligence industry, arguing that technology-company debt deserves greater attention after a period of significant underperformance. In its latest Flow Show commentary, Michael Hartnett, the bank’s chief investment strategist, described selected technology bonds as potential “diamonds in the rough.” His assessment reflects a changing relationship between AI investment, corporate financing, and the interests of bondholders.

Bank of America Sees Relative Value After a Difficult Year for Technology Credit

According to Hartnett, US technology bonds have lost approximately 9% in 2026. Their total returns relative to the broader investment-grade bond market have fallen to their weakest level in approximately 30 years. BofA’s argument is that this underperformance has created a more attractive valuation environment, particularly as yields on long-dated bonds issued by major technology companies have moved into the 6% to 8% range.

The bank’s analysis identifies the rapid expansion of AI-related borrowing as a major contributor to this repricing. Hyperscalers have issued approximately $182 billion in bonds during 2026, compared with just $17 billion in 2024, as they finance data centers and supporting infrastructure. The resulting supply has required investors to demand higher yields to absorb the additional debt.

BofA Highlights a Changing Balance Between Shareholders and Bondholders

A central element of Hartnett’s assessment is the changing way major technology companies are financing their expansion. Hyperscalers have raised approximately $89 billion through equity issuance in 2026, while their share repurchases have declined to an annualized pace of around $14 billion, compared with $105 billion in 2024.

For Bank of America, this shift matters because issuing equity rather than relying exclusively on additional borrowing can preserve balance-sheet capacity. Reduced buybacks also mean that companies retain more capital instead of distributing it to shareholders. This can strengthen the financial position supporting outstanding debt and improve the relative appeal of credit exposure. Hartnett sees this development as a potential turning point after a prolonged period in which AI-related equities outperformed their corresponding bonds.

Bank of America Warns That AI Capital Spending Will Test Financial Discipline

BofA’s broader research also highlights the scale of the investment cycle ahead. The bank estimates that AI capital expenditure could rise from $240 billion in 2024 to $1.2 trillion by 2027. Over the same period, free cash flow is projected to move from approximately $240 billion to negative $180 billion.

These estimates explain why the bank considers credit-market discipline increasingly important. Large infrastructure commitments may support long-term technology development, but they also place greater demands on liquidity, financing access, and corporate balance sheets. Hartnett’s assessment suggests that bond investors are becoming more influential in evaluating whether the AI expansion is being financed sustainably.

Credit Risk Remains Central to BofA’s Assessment

Despite identifying relative value, the bank’s thesis does not imply that technology credit has become risk-free. Credit-default swap spreads have widened across several major AI-related companies, indicating that investors continue to demand greater compensation for perceived credit risk. The growing concentration of AI exposure across hyperscalers, semiconductor companies, and infrastructure providers also raises questions about diversification.

For international wealth managers and sophisticated investors, BofA’s analysis highlights a distinction between participating in AI growth through equities and assessing the companies financing that growth through debt. The bank’s outlook places greater emphasis on issuance discipline, retained capital, cash-flow generation, and credit protection. As AI infrastructure spending accelerates, these factors will become increasingly important in determining which issuers can sustain their investment commitments without weakening their financial flexibility.

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