The recent artificial intelligence boom has prompted a wave of corporate borrowing. Companies are securing loans to fund AI-driven projects, including building data centers, purchasing semiconductors, and investing in digital infrastructure. A report by Morgan Stanley estimates that AI-linked corporate debt issuance will reach nearly $570 billion by 2026.
Fitch Ratings has raised alarms regarding the fast-paced growth of AI-related debt. In a July 27 report, the agency noted that AI investments contributed to 1.4% of U.S. GDP growth during the first quarter of 2026. However, the report also warns that if AI projects fail to deliver the expected returns, those economic gains may reverse. Fitch is especially concerned about how underperforming AI investments could disrupt the credit market, particularly for bondholders.
The Uncertain Future of AI Investments
The Fitch report identifies a critical risk: the unpredictable long-term value of AI technology. If major corporations' AI initiatives do not generate the expected profits, they could struggle to meet their debt obligations. Such financial strain might lead to defaults, resulting in losses for bondholders and creating broader instability in the credit market. The report draws parallels to past tech cycles, where the long-term viability of emerging technologies often fell short of initial expectations.
The AI boom has been the dominant force in the U.S. stock market since the November 2022 debut of ChatGPT. Today, over one billion people use AI tools monthly, and some of the most profitable global companies have heavily committed to AI's future. However, some investors are now questioning whether the AI sector is overheated. As major tech firms spend hundreds of billions on AI-related infrastructure, concerns arise that these investments may not generate the anticipated returns.
The risks do not stop at top-tier tech companies. Firms issuing high-yield bonds, or junk bonds, could be hit hardest by any downturn in AI-related investments. These bonds, which offer higher returns to attract investors, come with greater default risks. If the AI-driven economy slows, these companies may find it difficult to service their debt, potentially triggering financial stress for their bondholders.
Performance and Risks of JNK ETF
The State Street SPDR Bloomberg High Yield Bond ETF, known as JNK, plays a prominent role in the high-yield bond market. With a diversified portfolio of 1,233 junk bonds, the ETF has delivered impressive returns. As of July 30, it posted an 8.56% annualized return over the past three years and a 30-day SEC yield of 6.76%. These results reflect the strong performance of high-yield bonds in recent years.
Despite its strong returns, JNK is not without risks. While it has outperformed investment-grade bond funds over the past decade, the ETF is vulnerable to economic downturns. A slowdown in AI-driven tech companies could lead to increased default rates among junk-rated firms, harming the ETF's bond holdings and reducing investor returns.
The ETF's current performance may mask its increasing exposure to AI-related corporate debt. The credit rating uncertainty surrounding AI investments makes JNK a challenging bet for investors expecting sustained high returns. As more companies issue high-yield bonds to fund AI initiatives, the risks for investors in the ETF could rise.
For investors who missed the early stage of the AI boom—like those who missed the 2009 signal that preceded Nvidia's rise—a new warning is emerging. The AI market is now in a phase where the risks of overleveraging are becoming apparent. Just as historical tech cycles have experienced sharp corrections, the AI sector could face a similar fate if the anticipated returns do not materialize.