AI debt weights on mega-cap tech: Here's what to know

Summary

CNBC's Kate Rooney explains how surging AI capex is consuming mega-cap free cash flow, driving record debt issuance by Alphabet, Oracle, and expected for Amazon, making these stocks newly sensitive to rising bond yields. Additional headwinds include cheap AI models challenging the spending narrative and institutional selling of Mag-7 names as a funding source.

• Mega-cap tech companies are spending $750 billion on AI this year, up 80% from a year ago, with capex as a percent of free cash flow at the highest since the dot-com bubble.
• Alphabet, Oracle, and expectedly Amazon are raising significant debt, while SpaceX tapped the bond market, signaling a broader debt-funded AI build-out.
• The new debt load makes mega-cap tech more sensitive to rising interest rates; the 10-year yield is near 4.5%, ending their historical immunity to bond markets.
• Microsoft is offering access to the ultra-cheap Chinese model DeepSeek and has launched its own fleet of discount AI models, intensifying questions about overinvestment in AI.
• J.P. Morgan notes that Mag-7 stocks have become a source of funds for clients, contributing to the recent selloff in these names.