If you are an equity investor, you likely see the glass half full – there is always opportunity somewhere and if you can capture either a short term or long term wave so much the better. If you are a bond investor, you likely see the glass half empty, your big concern is getting paid monthly and getting your principal or money back. If you sense too much risk, the higher the interest rate not matter how sexy or hot the market is.

In an article by Joe Rennison of the New York Times News Service, for the past couple of years the AI trade has been the wave or the place to be on the equity markets. Some of those companies which need access to capital or credit go to the bond market, and the investors are increasing the interest rates for them to be protected.

In one debt deal, Allied Digital Corp, a data center builder, had to pay 3.75% higher in interest above similarly rated companies or 70% more in interest.

Construction delays at these data facilities could push out the time it takes before they can start generating revenue from their leases to AI companies. Investors worry about a glut of unneeded data centers and leading to defaults on the debt to build the buildings holding all the chips.

Will Smith, a portfolio manager at AllianceBernstein, not we have to be much more pessimistic and not buy into the hype.

Equity investors have unlimited upside for a company and its stock price to grow and keep rewarding their investment. Debt investors want to get their money back. If everything goes well and stock prices go up, bond investors do not benefit, that is why they are more focused on the downside.

Companies looking to finance the next leg of AI infrastructure have borrowed $100 billion in 2025 according to Refinitiv. Some of the money came from the large players such as Amazon who borrowed $15 billion for AWS.

Smaller companies such as Wulf Compute, a subsidiary of Terawulf Inc raised $3.2 billion. The company was a bitcoin miner and has expanded into building data centers. Wulf Compute is paying 7.75% until the deal comes due in 2030. A similarly rated issuer would pay 5.5%.

The smaller companies bring debt deals have either data-center builders or renters such as CoreWeave Inc.. CoreWeave rents the data centers and puts in high-powered computer systems to run large AI models for hyperscalers such as OpenAI and Meta Platforms.

Applied Digitial is heavily dependent on CoreWeave as its main tenant. CoreWeave rents its computing powers to companies such as Meta, OpenAI and Microsoft.

CoreWeave raised $1.75 billion received a rating agency of a single B and a 9% interest rate. The stock is up 70%, but the debt is trading at 90 cents on the dollar. Generally single B rated companies trade at 7% yield.

Linking to dividend paying stocks, whenever there is hype in the stock market, look to the bond market and what does it tell you. Given the complexity of the market, there is always hype somewhere and some of those returns will want you to invest. What does the bond market tell you about those companies? have you determined which company is the best of the breed or will lose you less money. Every industry has cycles, just as stocks will go up and down, sometimes there is value, but you must do your homework first.

There are more questions than answers, till the next time – to raising questions.