Bank of America strategist Michael Hartnett recently advised investors to acquire technology bonds. This recommendation follows a period where tech debt yields have become exceptionally attractive due to extensive borrowing by AI hyperscalers and a notable shift in corporate financing strategies.
Details on Tech Bond Investment Opportunity
In November 2026, Michael Hartnett, a prominent investment strategist at Bank of America, highlighted a significant shift in the investment landscape. He noted that US technology bonds have experienced a substantial 9% downturn during the year, resulting in their returns, when compared to the broader investment-grade index, plummeting to a 30-year low. This creates a compelling opportunity for bond investors.
The primary catalyst for this decline is the overwhelming supply of new bonds. AI hyperscalers have ramped up their borrowing dramatically, issuing an astounding $182 billion in bonds this year to finance the construction of crucial data centers. This figure represents a massive increase from the $17 billion issued in 2024. To absorb this influx of debt, investors have demanded higher yields, with long-dated bonds from leading AI companies and the 'Magnificent Seven' now offering yields between 6% and 8%. Even more striking, CoreWeave's 2031 high-yield bond is currently yielding over 14%.
Hartnett's analysis, detailed in his latest "Flow Show" report, emphasizes that the power dynamic is evolving in favor of creditors. He cited Meta's recent share sale as a clear indication that companies are prioritizing bondholders. By opting for equity issuance over additional debt, firms strengthen the balance sheets supporting their bonds. This year alone, hyperscalers have raised $89 billion through equity, while share buybacks have fallen sharply to an annualized $14 billion from $105 billion in 2024. Hartnett believes the era of substantial buybacks is over, and the decision to retain cash directly benefits bondholders. He also predicts an end to the historical underperformance of AI bonds relative to AI stocks.
The financial demands of AI expansion are immense. Bank of America projects that AI capital expenditure will surge from $240 billion in 2024 to an estimated $1.2 trillion by 2027. Concurrently, free cash flow is expected to swing from a positive $240 billion to a negative $180 billion over the same period. Hartnett argues that bond markets are now enforcing a new level of fiscal discipline on this rapid AI growth.
Stress signals are already evident in credit markets. Data from S&P Global Market Intelligence, observed on a Friday, revealed that five-year credit default swap spreads for major tech companies have broadened considerably since early September. Oracle's spread, for instance, climbed from 210 to 276 basis points, while Nvidia's rose from 84 to 129. Although Oracle's spread did recede from an October peak of 325, offering a preliminary hint of stabilization, S&P Global indicated in October that investors are increasingly assessing AI exposure as a distinct credit risk.
Looking ahead, Hartnett anticipates that investors will maintain a risk-averse stance until the global cycle of interest rate hikes concludes. He pointed out that central banks have implemented 42 rate increases within the last six months. He foresees a potential easing of market pressures in the first half of 2027, contingent on geopolitical stability, a significant reduction in oil prices, and a halt to further rate hikes. In the interim, he suggests that any year-end market rally depends on the Roundhill Magnificent Seven ETF sustaining a value of $70 and the VanEck Semiconductor ETF maintaining $520. On a recent Friday, the Magnificent Seven fund dipped just below its critical threshold, while the semiconductor fund remains approximately 8% above its target level.
Reflections on the AI Investment Landscape
From an analytical viewpoint, Hartnett's perspective offers a timely reassessment of risk and reward in the burgeoning AI sector. His argument, favoring tech bonds over equities, suggests that the market's initial exuberance for AI stocks may be giving way to a more pragmatic evaluation of financial fundamentals. This pivot underscores the increasing importance of robust balance sheets and disciplined capital allocation in an environment of escalating investment and tightening monetary policy. It also highlights how rapidly evolving technological sectors can realign traditional investment paradigms, compelling investors to seek value in less conventional corners of the market as new financial pressures emerge.