The AI race is driving TMT debt issuance
The desk interprets the increasing investment in technology, media, and telecommunications (TMT) due to the AI race as a major driving force for debt issuance in both the US and Europe. Per the full note, TMT sectors are projected to account for significant portions of the expected €485 billion total credit issuance by 2026, with approximately €55 billion from Europe and at least $50 billion from the US alone. This surge reflects strong revenue growth expectations driven by AI-related business lines. The desk emphasizes that despite the anticipated debt influx, much of this capex spending will likely be funded through operating cash flows, suggesting a robust underlying financial stability in the sector.
What the desk is arguing
The desk views the ongoing AI race as catalyzing substantial debt issuance in the TMT sector, with expectations for record levels of financing in upcoming markets. Per the full note, this sector is projected to raise about €55 billion in European debt markets and at least $50 billion in US markets in the near term. With AI platforms now seeing real revenue contributions, this trend of heightened investment reflects a growing belief in sustainable financial returns amid the AI boom.
Revised estimates indicate that TMT issuers will significantly contribute to credit markets, suggesting not only robust issuance ahead but also strengthening confidence in tech-driven revenue streams. AI's impact on revenue is becoming evident through improved forecasts for major technology firms, leading to a reaffirmation of the anticipated issuance trajectory as TMT companies race to establish dominance in AI capabilities.
Where it sits in our coverage
Our current consensus target for the relevant currency pair stands at 1.075, with a range between 1.04 and 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan's slightly higher end of the spectrum while contrasting with bofa's more conservative stance. The desk's call sits at the midpoint of our forecast range, reflecting a balanced outlook based on anticipated market conditions.
How other firms see it
Aligned firms, such as jpmorgan, share a similar optimistic outlook on TMT issuance driven by AI investments. In contrast, bofa maintains a more cautious approach, signaling potential market hesitance around the sustainability of these tech-driven financial returns.
Watch the USD/EUR dynamics and the Fed's monetary policy for signs of how tightening financial conditions may influence investor confidence in tech-related debt markets. Growth expectations for firms like Amazon and Microsoft could also provide clues on overall TMT performance amidst increasing issuance.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The AI race is expected to drive significant TMT debt issuance, with €55 billion from Europe and $50 billion from the US.
- 02Strong revenue growth from AI-related business segments underpins this debt issuance.
- 03A significant portion of capex spending will be funded by operational cash flows.
- 04The TMT sector is projected to play a dominant role in the €485 billion total credit issuance expected by 2026.
Market implications
Traders should monitor the USD/EUR for movement relative to TMT sector trends, particularly following the recent surge in AI-driven investments. Pay attention to shifts in policy from major central banks that could affect liquidity in TMT debt markets.
Risks to this view
A reversal in this bullish sentiment could occur if major technology firms fail to deliver on projected AI-related revenue growth or if tighter monetary policies from central banks significantly dampen investment sentiment in the technology sector.
Articles The AI race is driving TMT debt issuance 08:09 TMT United States Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download AI platform competition is accelerating, driving increased investment in technology, media, and telecommunications. Though much capex will still be funded by operating cash flows, the sector is set to dominate 2026 debt markets with roughly €55bn of additional issuance in Europe and at least $50bn in the US Jan Frederik Slijkerman We remain supportive of robust issuance across European and US credit markets, driven by tech deals amid the AI boom We’re seeing a race to dominate the AI platform infrastructure, with operators of large technology platforms ramping up investments. We expect technology, media, and telecommunications (TMT) issuers to account for a large share of the €485bn total credit issuance expected for 2026.
Given year-to-date issuance, we expect the TMT sector to raise an additional €55bn from European debt markets this year. Given upcoming redemptions, we expect at least an additional US$50bn to be raised by TMT issuers in US credit markets. In this note, we provide updated figures while maintaining our view that a large share of the investments by the large technology platforms will come from operating cash flows.
AI revolution translates into strong revenue growth The Gen AI revolution was initially met with scepticism, with investors questioning whether heavy spending would generate meaningful returns. Today, however, the largest technology platforms are reporting strong AI-driven revenue growth. Although this performance is still largely driven by strong growth in their Cloud businesses, TMT companies are already seeing growing revenue contributions from AI-based lines of business.
Moreover, the market, based on consensus forecasts, expects revenues from the largest technology platforms to rise even further. We agree with this view. Consensus revenue growth expectations are shown in the figure below.
In our view, revenue growth is real, on both a historical and a forward-looking basis. Technology sector continues to show strong revenue growth (USD) Source: Refinitiv, ING "> Source: Refinitiv, ING Organic cash generation remains impressive and can cover investment requirements As we've discussed before, we continue to see strong revenue growth, supporting a continued increase in operating cash flow. This is especially important as companies ramp up capital expenditure.
As can be seen in the chart below, the world’s largest technology companies are expected to invest more than US$700bn in fiscal year 2026 – approximately a sevenfold increase since 2021. Capital expenditures are rising quickly (USD) Source: Refinitiv, ING "> Source: Refinitiv, ING One of the positive elements of accelerating spending plans to fund the AI infrastructure build-out is that they can largely be funded by growth in operating cash flow. Most technology platforms generate solid cash flow (OCF – Capex) (USD) Source: Refinitiv, ING "> Source: Refinitiv, ING TMT companies continue to raise cash in debt markets Since companies can fund most of their investments with operating cash flow, why would they turn to debt markets to raise capital?
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