Fitch Says: AI Market Correction Could Be a Big Risk to Corporate Credit. That Might Be Bad News for This Junk Bond ETF.
High yields on junk bonds can be tempting, but this type of corporate debt may carry a level of risk investors won't like.
Overview
The artificial intelligence (AI) boom is expensive. AI hyperscalers are spending a lot on AI capital expenditures, and they're borrowing heavily to do it. According to Morgan Stanley research from June, worldwide AI-related corporate debt issuance is expected to reach nearly $570 billion in 2026.
On July 27, Fitch Ratings issued a report estimating that AI-related investment added 1.4% to U.S. gross domestic product (GDP) growth in the first quarter of 2026. The sheer amount of AI-related capital investment could pose risks not just to the U.S. stock market but also to the overall U.S. economy, consumer spending, and, ultimately, to corporate credit and the bond market.
Details
If AI turns out to be as successful as investors believe, then all this corporate borrowing won't be a problem. But if the hoped-for returns from AI-related debt don't materialize, that could be bad news for bond investors.
Source
Originally published at www.fool.com.