Man Group: AI Buildout Creates Bubble Risk
Man Group's H2 2026 Credit Outlook warns of a massive surge in bond issuance for AI buildouts and hyperscalers. While demand fuels markets, it also creates bubble risks and challenges investor risk assessments.
Man Group PLC, a global investment management firm, has released its H2 2026 Credit Outlook, asserting that bond issuance related to artificial intelligence (AI) buildouts is reaching record levels. However, the firm cautions that this boom risks creating a bubble across both public and private credit markets.
The report highlights that the pace of bond issuance in the AI and hyperscaler space has been staggering year-to-date in 2026 and is expected to accelerate. This surge threatens to dwarf even the peak issuance periods of the dot-com era. By the end of 2026, AI and hyperscaler-related issuance could reach an estimated $400 billion in investment grade and an additional $65 billion in high yield and loans.
Credit markets are already feeling the pressure from this supply. Four out of the five hyperscalers have underperformed the broader market on a spread basis. AI-related capital expenditures are also impacting US GDP. According to Man Group, current spread widening is insufficient to compensate investors for the risks posed by supply overhang, competition, buildout delays due to labor shortages, and increasing regulatory scrutiny.
The firm believes investor caution is warranted due to the execution risks inherent in such a rapid buildout. Capital intensity has not yet peaked, off-balance sheet leverage is rising, and the sustainability of returns on AI investments remains unproven, particularly for data and cloud service providers. Concerns are particularly high for the high yield and leveraged loan markets, where many borrowers continue to have significantly negative free cash flow.
Man Group points to historical parallels, noting that similar vulnerabilities have recurred in credit markets before, such as in the IT and telecommunication sectors in the early 2000s. While stress rarely discriminates within vulnerable sectors, it can create opportunities to acquire strong companies in troubled areas. Currently, Man Group is focusing on software companies with stronger ties to the healthcare sector.