Wider credit spreads are healthy, show market discipline in funding AI capex: PIMCO

• AI issuance has not yet crowded out other corporate borrowers on the pricing side; non-financial companies (excluding hyperscalers) are seeing tighter spreads.
• Excess supply from AI capex is being absorbed via wider spreads and higher funding costs for the hyperscalers themselves.
• Wider credit spreads are considered 'healthy' as they demonstrate market discipline and a demand for higher risk premiums in funding AI capex.
• The AI buildout is currently balanced, with demand for compute still outweighing supply, though vendor financing introduces a risk of artificial demand.

PIMCO's Multi-Asset Credit Strategist discusses the impact of AI capital expenditure (capex) on credit markets. He notes that AI issuance has not yet crowded out other corporate borrowers on the pricing side, with wider spreads for hyperscalers indicating market discipline and a demand for higher risk premiums. The overall buildout is currently balanced, driven by strong demand for compute.