Fidelity manager avoids AI bonds as tech debt tops $180B

James Durance, a London-based portfolio manager at Fidelity International ↘ 2.22%, is steering clear of the wave of technology bonds flooding the market to fund the artificial intelligence boom. Overseeing $14 billion in income strategies, Durance has kept tech exposure below 2%, warning that lending to the sector could grow so large by the end of next year that its sheer size becomes a risk in itself.bloomberg

His caution arrives as hyperscalers including Alphabet ↗ 0.21%, Amazon Amazon.com, Inc. ↗ 1.00%, Meta ↘ 2.43%, Microsoft ↘ 0.80%, and Oracle ↘ 1.98% have already issued more than $180 billion in dollar-denominated bonds so far in 2026. Goldman Sachs The Goldman Sachs Group, Inc. ↘ 1.00%, by contrast, sees more opportunity in AI infrastructure than in long-dated Treasuries, even with the 10-year yield now above 5%.twentyfouram

A Wall Street Divide

The divergence underscores a growing debate over whether AI infrastructure debt is priced appropriately as borrowing costs climb. Anshul Sehgal, Goldman's global co-head of fixed income, currencies, and commodities, said on the firm's podcast published Friday that he favors AI infrastructure companies, including neocloud providers and data centers. "Personally, I think the asymmetric expression is being long compute," Sehgal said, adding that AI investments "can go up multiplicatively" while bond yields may fall only modestly.businessinsider

Durance's skepticism reflects a broader unease among credit investors. Reuters reported in August that the wave of AI-related debt issuance — which reached $220 billion by early August according to BNP Paribas data — was showing signs of "indigestion" among large bond buyers. The Bloomberg index tracking tech corporate bonds has dropped more than 2% over the past year, and a Vanguard ↗ 0.11% analysis noted that technology's share of the Bloomberg U.S. Corporate Bond Index is rising quickly as AI borrowing accounts for a large share of net new supply.gurufocus+2

The 5% Threshold

The backdrop for this debate is a Treasury market that has regained its appeal. The 10-year U.S. Treasury yield surpassed 5% on September 14 for the first time since 2007, driven higher by the Federal Reserve's rate hike last week — its first increase in three years — persistent inflation, and heavy corporate bond supply tied to AI spending. According to Morningstar, U.S. bond funds saw net inflows of $625 billion from January through August, the highest for that period since tracking began in 2010.chosun+2

Sehgal argued that higher rates have not undermined the AI trade, noting that larger interest payments have channeled more capital into the hands of savers who in turn finance infrastructure investment. But he acknowledged the picture outside AI is less clear: "Does that mean that the broader equity complex should do very well? It's less clear".businessinsider

For Durance, the math points the other way. With tech debt growing at a pace that could make concentration itself a systemic concern, he is content to collect income elsewhere — and wait.