AI Credit Fears Ease After Meta Announces $95 Billion Stock Offering Plan, With Alphabet and Amazon Reports Still Ahead

The credit market panic over AI spending has cooled, though it has not gone away. Since last Thursday's tech rout, spreads on the debt of the biggest AI spenders have tightened after Meta Platforms said Monday, Oct. 26, that it plans a $95 billion stock offering.

Meta's credit-default swap spreads had jumped last week after the company reported negative free cash flow for the third quarter. Other companies' spreads moved higher too, then retreated.

What actually tightened the spreads

The stock offering is one piece. Richard Cheng, head of Nuveen's investment-grade corporate sector team, points to something that did not happen. Investors expected a large Meta bond deal soon after earnings, and none was announced.

"Just the absence of the bond deal itself is a direct catalyst for AI-related spread tightening," Cheng said.

A credit spread is the gap between a corporate bond's yield and the yield on a Treasury of similar maturity. Tighter spreads mean investors are more confident in the borrower.

Still far wider than a year ago

The relief is partial. Meta's CDS spread remains up 177% year to date. Amazon's is up 129%. Bond yields are also still elevated.

The 10-year Treasury yield fell about 18 basis points to 4.97% on Oct. 22, dipping below 5% for the first time since Sept. 22. Russell Thompson, chief investment officer at Hilbert Group, described the move as "a rotation of capital and a flight to quality" after tech stocks sold off. The Nasdaq Composite fell 2.4% that day.

Some see the credit fear as overdone. CNBC contributor Paul Meeks, head of technology research at Freedom Capital Markets, said the last few days show "credit fears may have been overblown." He expects "better feelings, maybe not good but better" to continue as companies report over the next few weeks.

CreditSights analyst Jordan Chalfin put numbers on the mood. "It's not necessarily fundamentals," he said. "It's more, I'd say, 80% driven by technicals and sentiment."

The cash flow problem

The skeptical side rests on cash flow. S&P Global Ratings estimated in an August report that the hyperscalers will have negative free operating cash flow in both 2026 and 2027.

Alphabet and Amazon both reported negative free cash flow in the second quarter. FactSet consensus estimates, which are projections and not results, call for more of the same in the third quarter:

• Alphabet: free cash flow of negative $2.3 billion on capital spending of $55.2 billion.
• Amazon: free cash flow of negative $9.9 billion on capital spending of $58.7 billion.

Nvidia CEO Jensen Huang addressed the funding strain in a CNBC interview aired Oct. 22. "The demand of the capital is much greater than the availability of the capital," he said, adding, "That's going to get solved."

Tech borrowers are also competing with each other and with the federal government for bond buyers. In that setting, the Epoch Times noted, companies may have to offer higher returns to attract money.

The bull case: a backlog

Bloomberg Intelligence analyst Mandeep Singh argues the spending will pay off. On the firm's podcast last Thursday, he said Amazon, Microsoft, Alphabet and Oracle have a combined backlog of about $2 trillion. He expects the cloud businesses of the big three to accelerate for the next three or four quarters and to beat consensus numbers "handily."

The company-reported figures give him something to work with. AWS revenue rose 37% to $42.2 billion in the second quarter, and its backlog jumped from $364 billion to $496 billion in three months. Google Cloud revenue rose 82% to $24.8 billion. Azure grew 43% in the June quarter, and Microsoft's management guides to about 45% for the September quarter.

Amazon CEO Andy Jassy said on an Andreessen Horowitz podcast Friday that 2027 is largely sold out and "a good chunk of 2028" is too. Alphabet CEO Sundar Pichai said last week, "We are capacity constrained on a daily basis."

The bill is large. Alphabet expects to spend $195 billion to $205 billion this year, more than double 2025's $91.5 billion.

What comes next

Oracle holds its Investor Day on Wednesday, Oct. 28. Microsoft and Alphabet report after the close that day. Amazon follows after the close Thursday, Oct. 29.

Microsoft has not issued bonds to pay for its AI spending, which sets it apart from the others. For Alphabet and Amazon, Cheng says the main concern is the direction of capital spending. Their updated capex plans and free cash flow forecasts are the next test for tech bonds.

A higher spending forecast alongside accelerating cloud revenue would support Singh's thesis. A higher forecast without that acceleration would put the debt question back in front of credit investors.