The credit markets begin 2026 on solid ground, buoyed by resilient corporate fundamentals, elevated yields and relatively low default rates. But investors face headwinds in tight credit spreads, and we expect increased bond-market dispersion—amplified by a large-scale build-out of artificial intelligence (AI) infrastructure. In our view, picking tomorrow’s winners in this evolving landscape will make credit selection more important than ever.
The AI Building Boom Has Begun
AI’s golden age has yet to arrive, but the expansion phase has already begun, with myriad implications for fixed-income investors. Hyperscalers—large cloud-service and infrastructure providers—are in a race to fund training superclusters and globally distributed inference capacity. The stakes—and the cash burn—are enormous. Fortunately, these technology behemoths have robust cash flows and strong balance sheets that make it possible to tap the investment-grade bond market for a portion of this funding. Hyperscalers also fill a need for higher-quality fixed-income assets, helping to balance supply with demand.
As infrastructure providers ramp up spending on data centers, energy infrastructure and networks, we expect to see investment-grade supply expand significantly in 2026—albeit at manageable levels within the public markets. Consider that the five major hyperscalers—Amazon, Alphabet Inc., Apple, Meta Platforms and Microsoft—comprise nearly 20% of the broader equity market but only 3.5% of public investment-grade debt. That’s due not only to the scale of the investment-grade bond universe but also to the growing role of private credit in offering niche funding solutions that the public markets can’t—or won’t—provide. Moreover, some AI-adjacent expenditures in power generation and grid connectivity are occurring outside the domain of hyperscalers.
We view credit growth tied to AI, particularly in power and grid investments, as both an opportunity and a potential source of friction. With private credit shouldering more of the funding load, we don’t expect the public credit markets to be swamped with new issuance over the coming year. That should reduce the burden on the public investment-grade market.
Still, risks remain in the form of overbuilding, uncertain demand and stranded assets. Fortunately, these haven’t escaped the market’s watchful eye. Large-cap tech issuers have lagged the broader investment-grade market modestly in recent months as investors scrutinize the AI build-out. In our view, that’s not stress; it’s the market beginning to price in uncertainty, which we view as healthy.
Dispersion Could Take Many Forms
We see 2026 as a divergence year marked by softening corporate fundamentals and higher dispersion, which could be amplified by AI. The investment-grade universe—increasingly populated by well-capitalized hyperscalers—has seen many more upgrades than downgrades in recent years (Display).
