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Investing.com -- Big tech’s latest borrowing spree to fund AI buildouts should not deter investors who remain underexposed to the sector, according to UBS as strong balance sheets and steady cash generation leave room for continued AI investment.
Amazon, Alphabet, Meta and Oracle have raised tens of billions of dollars in recent weeks to support data center expansion. The scale of issuance has some concerns if rising debt costs could slow the AI equity rally or echo the credit-fuelled excesses of the dotcom era.
According to UBS these concerns are misplaced.
Tech companies continue to finance most of their capital spending through operating cash flows, estimating that 80 to 90 percent of planned AI capex is covered internally.
Recent bond issuance provides an additional funding source rather than a sign of stress, and longer maturities support liquidity.
Recent collaborations between Nvidia, Oracle and OpenAI represent about 5 percent of Nvidia’s projected 2026 pretax earnings, compared with more than 120 percent during the dotcom period.
Most major tech firms hold more cash than debt and have long-dated obligations, leaving substantial borrowing capacity relative to their credit profiles. This has helped attract strong demand for new issues, with Meta’s 30 billion dollar offering drawing around 125 billion dollars in orders and Amazon’s attracting about 80 billion.
UBS expects investment grade credit markets to absorb further issuance as insurance and pension funds seek long-duration supply. It said the structural AI growth story remains intact and that participation in long-term technology trends is important for wealth preservation.
UBS said investors who remain underallocated should consider adding exposure.