Global Markets Daily Hyperscaler Credit vs. Equity More Issuance, a Higher Beta, and a Different Focus on Cash Flow

Economics Research 28 July 2026 | 8:14AM EDT

Global Markets Daily: Hyperscaler Credit vs. Equity: More Issuance, a Higher Beta, and a Different Focus on Cash Flow

n Heavy AI-related capex has reshaped how hyperscaler credit and equity Shamshad Ali | co-move. As these firms increasingly fund investments with debt, equity values Goldman Sachs & Co. LLC have become more tethered to fluctuating asset valuations, while structurally imposing a higher cost of credit. n Credit’s beta to equity returns should increase with bond maturity, given an upward-sloping term premium. While elevated yield-based demand has dampened the beta for long-duration credit in the broader market, the AI capex cycle has lifted it for hyperscaler credit—especially as spread volatility has been felt acutely in the long-end of the curve. n Credit spreads have widened alongside a deterioration in forward free cash flow yield for hyperscalers. As a result, the path ahead for credit likely hinges on some improvement in forward estimates of free cash flow generation. n That said, the manner of improvement matters more for credit vs. equity relative value. A scenario of free cash flow gains from declining capex would likely favor credit, while a scenario of rising net income and operating cash flow would likely favor equity, as investors may read it as an inflection point for additional value accrual across the AI stack (with equities more exposed to that potential upside).

Hyperscaler Credit vs. Equity: More Issuance, a Higher Beta, and a Different Focus on Cash Flow

Increasing focus on AI-related capex has driven a few themes in markets. In equities, rising capex estimates have begun to dominate future revenue generation leaving infrastructure and “picks and shovels” names such as energy providers, semiconductor and chip manufacturers more supported than the hyperscaler equities investing in capex and presumed ultimate beneficiaries. Credit markets have focused first on the scale and speed of investments, given they are increasingly funded by debt capital, and second on clarity over returns on investment that can offset the significant expenditure.

Credit is more senior to equities, has finite duration and has upside largely limited to payment of interest and repayment of principal. Historically, this has meant a departure from the longer-term terminal values increasingly dominating equity returns, as credit investors focus instead on near-term cash flow and earnings for debt service. Yet, large AI investments are increasingly changing that picture. In this Global Markets Daily, we take stock of the relationship between hyperscaler long

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Goldman Sachs Global Markets Daily

bonds and their equity, using a range of metrics including the beta of spread changes to equity returns. We find that hyperscaler long-end spreads have widened in tandem with the dramatic decline in cash flow yield, underperforming an evolving equity beta in periods of heavy supply. Recently, this underperformance has been more pronounced in the long-end of credit spread curves, compared to shorter tenors. Improvement in cash flow may lead to a rally in spreads, but the manner—for example, if the improved cash flow is driven by a paring back of spend, or an acceleration in monetization/profitability—will likely matter more for credit/equity relative value.

AI is changing the credit-equity relationship for hyperscalers An upward-sloping credit term premium and increasing spread duration typically mean that long-duration credit co-moves more with equity prices—mechanically, a higher beta. However, the rise of liability-driven investors searching for yield, together with elevated policy rate volatility during the 2022-2023 Fed hiking cycle, has lowered long-end credit beta, predominantly through lower volatility (Exhibit 1).

Exhibit 1: Long-end credit spread beta to equity returns has moved lower in recent years, predominantly because of lower volatility Monthly beta regressing USD IG spread changes across…