Podcast Summary: Thoughts on the Market

Episode: AI Capex Boom Puts Credit Markets to the Test
Host: Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley
Date: November 21, 2025

Episode Overview

Andrew Sheets explores a new and significant challenge facing global credit markets: a surge in capital expenditures (capex) driven by the race among technology companies to develop infrastructure for cloud computing and AI. He examines how this wave of spending is shifting the dynamics of corporate borrowing, with important implications for bond supply, investor demand, and credit risk.

Key Discussion Points & Insights

1. Historical Perspective: Post-Financial Crisis Credit Trends

• The Crisis’ Aftermath: Sheets recalls the 2008 global financial crisis as a watershed moment that forced radical changes in corporate credit behavior.
  • “It's hard to state just how extreme that period was, how many usual relationships and valuation approaches broke. It saw the worst credit losses in 80 years. I think and hope that this record will hold for the next 80.” (A, 00:24)
• Conservative Corporate Behavior: In response, companies increased cash levels, simplified bank balance sheets, and the housing market enforced tighter lending.
• Key Result: There was a pronounced “common theme, less bond supply.” (A, 01:04)

2. Recent Volatility & Its Typical Drivers

• Credit market volatility between 2009–2023 mainly stemmed from:
  • Macro shocks: Eurozone crisis, Covid-19, Silicon Valley Bank’s collapse (2023)
  • Sector-specific issues, e.g., oil sector declines
• Notably: “The idea that there would be too much borrowing for the level of demand… just hasn't been an issue. Until, that is, now.” (A, 01:27)

3. The AI Capex Boom: Scale & Momentum

• Current Trend: Tech giants are investing unprecedented sums into the physical infrastructure required for AI and cloud.
  • Estimates: $470 billion this year, $620 billion next year—over $1 trillion in just two years (and still rising).
  • “We see a lot of momentum behind this spending as the companies doing it have both enormous financial resources and see it as central to their future ambitions.” (A, 02:04)

4. Funding the Boom: Cash Flow vs. Debt

• Approximately half of this capex is expected to be self-funded.
• Debt Markets’ Role: The rest will rely on borrowing, as many major tech companies are highly-rated and have ample capacity to take on more debt.
  • Recent weeks have seen “several large technology hyperscalers…borrowing tens of billions at a clip…and they've been doing this in short succession.” (A, 02:38)

5. Market Impact: Discount Borrowing & Supply Shock

• Borrowing Comes at a Premium: Tech firms are offering new debt at a discount (higher yields) compared to existing obligations.
  • “This new borrowing has been coming at a discount, with the issuers willing to pay investors a bit more than their existing debt to take it on.” (A, 02:49)
• Investor Demand: Remains high, and most deals are well within ratings agency guidelines.
• A New Challenge: The sheer supply of new, high-grade debt is weighing on the market, with notable consequences:
  • “These are very large deals coming at very large discounts and they are moving the market. If a AA rated company is in the market willing to pay the same as a current single A, well, that existing single A credit just simply looks less attractive.” (A, 03:13)
• Market Adjustment: This supply-driven challenge contrasts with the demand-side/macro shocks of prior years.

6. Outlook: Navigating an Unfamiliar Landscape

• Not a “Scary” Problem: Sheets reassures listeners this is a more manageable market challenge than previous crises.
  • “As far as problems go, we think this is a generally less scary one for the market to face, but it is a new challenge, something we haven't encountered for some time…” (A, 03:23)
• Persistence: Based on ongoing spending plans, this issue may be present for some time.

Notable Quotes & Memorable Moments

• On the scale of AI capex:
  “That's over $1 trillion of spending in just a two year period and it's still growing.” (A, 02:17)
• On market dynamics:
  “If a AA rated company is in the market willing to pay the same as a current single A, well, that existing single A credit just simply looks less attractive.” (A, 03:13)
• On the nature of the current challenge:
  “We think this is a generally less scary one for the market to face, but it is a new challenge, something we haven't encountered for some time.” (A, 03:23)

Timeline & Important Segments

• 00:01–00:55: Historical context—credit markets since the GFC
• 00:56–01:26: Volatility and its typical causes post-GFC
• 01:27–02:03: Introduction of the AI capex boom as a new challenge
• 02:04–02:37: Scale and drivers of tech company spending
• 02:38–03:22: Debt market implications and high investor demand
• 03:23–03:40: Reflections on the new supply-driven challenge and outlook

Summary Table: Major Themes

| Theme | Key Point | Quote / Timestamp | |------------------------------|--------------------------------------------------|------------------------| | Post-GFC Behavior | Conservative management, less bond supply | “common theme, less bond supply” (01:04) | | AI Capex Surge | $1+ trillion in 2 years; unprecedented scale | “over $1 trillion…still growing” (02:17) | | Funding Shift | Debt markets to fund half of this boom | “debt markets will play a big role” (02:31)| | Market Impact | Supply shock, affecting credit valuations | “moving the market” (03:13) | | Nature of Challenge | Less scary but new; likely to persist | “new challenge…may be with us for some time” (03:23) |

For listeners:
This concise episode uses clear, direct language and measured optimism to frame the AI-driven investment boom as a new—but not crisis-level—test for credit markets, with implications for how investors price risk and reward in an era of unprecedented technology capex.