Technology companies requiring massive capital to fund their artificial intelligence ambitions are completing mega debt deals at the fastest pace in years, capitalizing on investors' seemingly insatiable appetite to secure financing for projects with still-uncertain ultimate returns.

Borrowers are tapping various credit channels and easily finding buyers. Data shows that in the U.S. public bond market alone, tech companies have raised approximately $157 billion year-to-date, representing roughly 70% more issuance than the same period last year.

Oracle (ORCL.US) leads the charge, having issued nearly $26 billion in publicly traded debt this year, with the majority coming from a massive offering on Wednesday. Oracle is preparing to invest billions of dollars in leasing data centers and equipping facilities with NVIDIA (NVDA.US) chips for AI customers like OpenAI.

Giants including chip manufacturer Broadcom (AVGO.US), Alphabet (GOOGL.US), and Apple (AAPL.US) have also joined the fray, collectively raising hundreds of billions of dollars, with some companies accessing funding markets for the first time in years.

Meanwhile, Meta (META.US) is raising $29 billion through private credit for data center construction, while banks are arranging $38 billion in debt financing to help Vantage build data centers that will be leased to Oracle.

"This is the latest sign that the AI investment fever that has long been concentrated in equity markets is spreading to credit markets," said Johnathan Owen, a member of the investment-grade portfolio management team at TwentyFour Asset Management.

These wide-ranging and in some cases extraordinary transactions demonstrate the massive scale of financing required for the AI race – and that debt markets are destined to play a crucial role.

For bond buyers, this represents a wager: betting that these companies' investments won't exceed demand and that they'll have the ability to repay creditors decades from now.

So far, investors appear highly willing to accept this risk, leaving little room for error. Demand for investment-grade bonds is so strong that credit spreads – the additional yield investors demand to hold debt rather than Treasuries – have been compressed to their lowest levels in nearly 27 years, particularly for debt from highly-rated tech giants, attracting investors eager to participate in the AI products and infrastructure boom.

This week, Oracle leveraged strong demand to increase its massive bond offering size from approximately $15 billion to $18 billion, making it the year's second-largest investment-grade transaction, trailing only Mars' $26 billion bond issue for the Kellanova acquisition. The software company also attracted peak orders of approximately $88 billion, with final demand around $82 billion. Some of this debt has maturities extending to 40 years. The offering's roughly 4% order dropout rate was well below this year's 21% average.

Another example: Alphabet's April bond offering was oversubscribed by 7 times, while investment-grade bonds this year have averaged 3.8 times oversubscription.

"From what we're seeing, investable capital flowing into the tech sector far exceeds other industries. It's one of the few sectors still experiencing sustained growth," said Matt Gannon, Managing Director of Barclays' Debt Capital Markets group.

Year-to-date, tech companies have accounted for 8% of U.S. blue-chip bond issuance, the highest proportion since 2021, trailing only financials, consumer discretionary, and utilities – sectors that are similarly benefiting from data center demand.

However, for some, the frenzy surrounding AI evokes striking similarities to the early 2000s internet investment bubble burst, raising concerns that this boom may be overvalued. An MIT study in August found that 95% of companies implementing AI pilot projects failed to achieve investment returns. Others point to longer-term concerns.

Earlier this week, a Bain & Company report predicted that by 2030, AI company revenues could fall short by approximately $800 billion compared to the capital needed for computing power to meet projected demand.

AI infrastructure construction is so expensive primarily due to AI-specific NVIDIA chips used to populate data centers and the massive power requirements involved. This summer, Oracle reached an agreement with OpenAI to provide 4.5 gigawatts of data center power, equivalent to roughly four nuclear reactors. For just one data center in this plan, Oracle expects to spend over $1 billion annually on gas-fired power generation.

"The amount of money being invested in building more computing capacity is simply staggering," said Damien McCann, Fixed Income Portfolio Manager at Capital Group.

Nevertheless, investors like McCann and industry analysts note that these companies generally maintain healthy balance sheets – meaning their debt isn't excessive relative to earnings – and show no signs of credit rating deterioration.

Tech companies may have more bond issuances in the remaining months of this year. Underwriting professionals indicate that these cash-rich companies chose not to issue debt last year or earlier this year, instead waiting for yields to begin declining before entering markets.

"Over the next 5 to 10 years, these major tech companies have quite heavy capital expenditure requirements. An important way to meet some of these capex needs is through debt financing on the balance sheet," said John Sales, Head of Investment Grade Underwriting for the Americas at Goldman Sachs Group.