Big Tech bonds, not stocks, offer more opportunity right now, says Bank of America
The big opportunity right now is in mega-cap tech bonds — not stocks, according to Bank of America’s Michael Hartnett. Concerns about the massive amount of debt being taken on for the artificial intelligence buildout have pushed yields higher, with even investment-grade hyperscalers paying out as much as 8%. Bond yields move inversely to prices. So far, some $271 billion in debt and equity has been issued by the hyperscalers this year, said Hartnett, BofA’s chief investment strategist, who has been cautious on the stock market. “[B]uy tech bond ‘diamonds in-rough,'” he wrote in a note Thursday. “Mag7 bond yield attractive [at] 6-8% … as META equity issuance signals new respect for credit investors, and AI bond vs. stock underperformance over.” Tech stocks have tanked this week after companies reported earnings, with many showing unexpectedly large negative free cash flows. Capital expenditures have remained astronomical. For instance, Amazon held its capital expenditure forecast at $220 billion, but saw outflows of $42.4 billion for the trailing twelve month period. Alphabet reported negative free cash flow of $9.07 billion and anticipates full-year capex to total between $195 billion and $205 billion. Even Microsoft is finally moving into the bond market for its AI financing, announcing $25 billion in new issuance . Meta Platforms , however, turned to the equity market for its next round of financing. The Instagram and WhatsApp owner said last week it plans to raise a total of $95 billion through stock offerings. Increased sales of stock are negative for hyperscalers’ existing equity, insofar as Hartnett believes it heralds the “era of big stock buybacks [is] over.”