Investors seeking exposure to the AI megatrend have so far concentrated largely on listed equities, particularly the handful of large-cap companies that dominate the global indices.

But with the top 10 stocks now accounting for around 36.5 per cent of the S&P 500 by market capitalisation, that level of concentration risk may be prompting advisers and clients to look for alternative ways to access investments in the space, according to Goldman Sachs Asset Management. 

And with AI concentration now showing up in global indices – with the thematic captured in varying degrees in the ten largest companies in emerging markets, European and Japanese benchmarks - investing globally doesn’t necessarily afford the diversification benefits it once might have, according to J.P Morgan.

“Remember that diversifying by region doesn’t automatically mean you’re diversifying by sector or theme. Even within international equities, some markets can be heavily tilted toward a handful of industries, so it’s worth looking under the hood of your “diversifiers” to make sure you’re truly spreading exposure across sectors—not just across geographies,” says JP Morgan.

Debt markets are becoming one such avenue, as companies issue bonds and other credit instruments to fund the infrastructure required for future AI development. 

J.P. Morgan has framed the AI infrastructure buildout as a capital expenditure cycle that may rival earlier waves of economic transformation. The bank estimates investment in data centres, power infrastructure and related IT equipment could reach the equivalent of around 2 to 3 per cent of cumulative GDP, potentially surpassing the scale of the railroad, electricity and internet buildouts relative to the economy.

That funding task is increasingly flowing into debt markets. Morgan Stanley expects AI-related global debt issuance to more than double to nearly US$570 billion in 2026, according to Reuters reporting on the bank’s research. Almost US$236 billion had already been issued by 31 May, four times the level recorded over the same period a year earlier.

The five largest hyperscalers are on course to devote more than US$1 trillion to AI-related capital expenditure in 2025 and 2026, according to the Bank for International Settlements, a funding task that is increasingly drawing on corporate bond markets and other forms of debt capital.

AI’s investment potential, therefore, extends from an equity theme into a broader capital stack discussion, albeit with different return drivers and risks to AI exposure through global equities.

Accessing the AI debt theme

As AI moves from an equity market thematic to a large-scale infrastructure buildout, advisers may need to consider whether client portfolios are exposed to the full capital stack beyond listed equity beneficiaries.

In Australia, the corporate bond market has become one avenue being used by both local and offshore tech companies to fund their data centre expansion plans, as well as the energy networks tapping into fresh sources of funds to power them.

“Bonds give investors the opportunity to gain exposure to the same megatrend through a broader universe of companies than listed equities alone,” says Te Okeroa, General Manager, Adviser Broking Services at AUSIEX.

“Australia has relatively few pure AI infrastructure issuers, so the opportunity is best viewed across the broader ecosystem - listed and unlisted companies at the centre of Australia’s infrastructure and economic growth - data-centre operators, utilities, and telecommunications and resource companies. A key question for bond investors is: ‘Who gets paid regardless of which AI company wins? Which companies can reliably service debt while building the infrastructure AI depends on? 

Other key factors to understand include the income, credit quality and capital-structure characteristics of the debt being issued.

NEXTDC Limited (ASX: NDC), the ASX-listed data centre operator, priced a single tranche of A$750 million of wholesale floating-rate notes offer in April. In its announcement, NEXTDC said the offer was well supported by institutional and high-net-worth investors, describing the demand as an endorsement of ‘the long-term trajectory of the Australian data centra market.’ 

Privately-held CDC Data Centres has also emerged locally as a major data-centre borrower. After reportedly receiving A$5.4 billion of bids for a A$1 billion subordinated bond issue in June, CDC has since begun meeting Australian bond investors for what the Australian Financial Review described as ‘Australia’s first investment-grade data centre bond deal.’

 According to the report, CDC’s brokers were discussing new six-and-10-year senior secured fixed-rate notes, marking the next stage of funding for a business that has already raised equity, bank debt, subordinated debt and hybrids to support its data centre buildout.

The Australian Financial Review also reported at the time that Texas-based utility Oncor was preparing an Australian bond issue as it plans to spend about US$10 billion a year to 2030 to meet electricity demand from data centres.

Together, these transactions point to a growing role for the Australian bond market in financing the infrastructure behind AI, from data centre capacity to the power networks required to support it. 

Okeroa points out that while implementing AI-related fixed income exposure in a portfolio still requires advisers to consider factors such as credit quality, maturity, liquidity and issuer diversification, incorporating individual corporate bonds into client portfolios much easier than was once the case.

Improved market access and specialist execution capabilities have meant accessing individual corporate bonds is no longer exclusive to institutional investors as was historically the case.

“Through the AUSIEX Fixed Income desk, investors can access corporate bond opportunities unavailable through an exchange-traded market,” says Okeroa. “This gives advisers another way to express structural investment themes through fixed income.”

AI-linked debt issuance and portfolio construction

Advisers need to first consider the return profile of AI-linked debt and where the debt sits on the capital stack, understanding that credit exposure is not a direct substitute for AI equities.

Where an equity focus would typically emphasise earnings growth and valuation upside, among other metrics, bond investors focus on variables such as borrower quality, interest coverage, maturity profile, ranking in the capital structure, refinancing risk and cash flow coverage, according to PIMCO.

“A corporate bond’s position in the capital structure is an important determinant of its risk and return,” PIMCO says in its guide to understanding the different capital structures of bonds.

In the context of AI-linked issuance, adviser considerations should therefore include issuer quality, leverage, maturity profile, refinancing risk and the reliability of cash flow – namely, where the debt sits in the capital stack. 

The structure of the debt also matters. “While subordinated bonds and hybrids may offer higher yields than senior debt, they rank lower in the capital structure and may carry extension risk, call risk and more complex terms” PIMCO explains. For advisers, that makes it important to distinguish between exposure to the AI theme and the specific credit risk attached to each issuer and instrument.

Assessing the AI opportunity through direct bonds 

AUSIEX’s direct bond investing capability and specialist fixed income support is at the centre of this emerging opportunity set, helping advisers access individual bond opportunities, compare credit exposures and consider how direct bonds may fit within diversified client portfolios.

Through AUSIEX advisers can access direct bond capability and specialist support to consider how these exposures may fit within diversified client portfolios.

Through this capability, advisers can explore whether the income, credit quality and risk profile are appropriate for their clients.

Speak with an AUSIEX Fixed Income specialist to learn how direct bonds can help clients gain exposure to the companies building the data centres, energy networks and digital infrastructure underpinning AI growth.

Important Information
AUSIEX Fixed Income is provided under the Australian Financial Services Licence of FIIG Securities Limited (FIIG) (ABN 68 085 661 632, AFSL 224659).