Typically, there are two competing markets for money. The stock market and the debt market. The stock market is more volatile but potentially provides higher returns on capital if you are willing to take the risk. Alternatively, the debt market is low risk and highly stable. It also caps the amount of income you can generate from an investment. While companies do issue debt, the largest debt market is the Treasury bond market.
Companies usually issue bonds that are denominated in 10s or 100s of millions, whereas the government bond issues tend to be denominated in the 10s of billions of dollars. The amount of capital that government bonds mop up is an order of magnitude greater than corporate bonds.
What you often see is that when the demand for Treasury bonds is low, the bond yield rises and money moves into the stock market. This is normally the case when the stock market is doing really well, inflation is low, and unemployment is low. When people are unemployed and stocks are not expected to perform well, money moves out of the stock market and into bonds, which assure a stable and steady return.
Over the last month, the stock market has been taking a beating across the globe while at the same time the bond yields have also shot up. Falling stocks imply that people are selling their stocks and freeing up capital. At the same time, rising bond yields imply a lack of demand for government debt.
What are people doing with their money?
Big Tech raised a record $108 billion in debt in 2025, more than three times the average over the previous nine years, according to Nomura. Goldman Sachs estimated about 40% of this year’s AI-related debt supply has been issued directly by hyperscalers, including Amazon, Microsoft and Alphabet.
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Hyperscalers, the largest cloud computing companies, are borrowing at record levels to build data centers. AI-related debt issuance reached nearly $500 billion in 2026 by early August
Source: R&D World
This number is expected to rise over the coming year and shoot well past $1 trillion. That is where all the money is going.
The AI buildout requires capital. Companies are raising that money through debt. That debt pays 6.5% to 10% in certain cases. This explains the rise in Treasury yields. The companies raising this debt are Microsoft, Amazon, Alphabet and Meta, which are all considered stable. They all have strong cash flows and profit streams. They are expected to pay back the loans they are taking on. In other words, they are considered at par with sovereign debt.
If Alphabet is taking on debt, investors do not expect it to fail to pay back the debt. Alphabet has issued $100 billion in debt this year, which is comparable to the size of debt issues of the U.S. government. The Treasury bonds are required to compete with AI companies.
The smart money is moving out of the stock market and the Treasury bond market. It is going straight into the AI buildout debt market. Hence, we find ourselves in this peculiar position where both markets are crashing.
There are a few wrinkles, though.
On the one hand, the entire AI story can collapse. The quantum of investment being made in capacity development has a returns expectation. If those returns are not realised, this thesis can come apart very quickly.
An even more fundamental question is that the value of AI is hinging on its ability to put people out of work and take over their role in an organisation at a lower cost. Instead of 1000 engineers, you are able to produce the same product with just 200 engineers and a fraction of the cost of hiring another 800 engineers. As you put more and more people out of work, consumption will decline. Who will buy all this shit that you produce very, very efficiently?
For now, there seems to be complete belief that AI is going to generate a lot of income for these companies. So long as that fiction persists, there is going to be a capital reallocation afoot.