Bond market anxiety is growing over AI capex budgets

Investors are getting increasingly uncomfortable with the amount of capital needed to make the artificial intelligence buildout a reality.

It's playing out in real time in the bond market, where the biggest names involved in the blitz — Google , Amazon and Meta — are seeing credit spreads widen as fixed-income investors demand more reward to lend to the companies.

Yields ticked higher this week after Alphabet lifted its capex forecast, raising concerns that other hyperscalers could follow suit.

Part of the reason capex budgets are going up is the rising cost of power. Energy is a major expense for all of the hyperscalers, which are constructing large data centers across the U.S. at breakneck speed.

GE Vernova CEO Scott Strazik told CNBC he expects the current inflationary environment to remain, driven in part by the heightened geopolitical backdrop. Just this week, oil broke above $100 a barrel.

The move in treasury yields is also inducing anxiety among fixed-income investors. Mizuho wrote to clients Friday morning that capex raises are testing investor limits as the companies, once seen as capital fortresses, are now seeing a dramatic rise in AI-tied costs.

The analysts added that the hyperscalers are currently on track to collectively spend more on capex than they generate in free cash flow by next year.

"It's creating intense discussions between bond and equity investors who have exposure to the biggest names in tech," said the portfolio manager of a credit fund, who asked to remain anonymous in order to discuss sensitive conversations.