One of the world’s largest bond managers just told investors to buckle up. PIMCO CIO Daniel Ivascyn warned on June 4 that a sustained credit default cycle has officially begun, with losses expected to climb well above the unusually low levels that markets have enjoyed in recent years.
The culprit, according to PIMCO’s analysis: a massive wave of AI-related capital spending that is pressuring the balance sheets of lower-quality borrowers and eroding free cash flow across the sector.
The AI debt machine is running hot
PIMCO’s own data pegs AI-related debt issuance at roughly $100 billion per quarter. Hyperscale operators, the companies running the massive data centers that power AI workloads, are increasingly financing their buildouts with leverage rather than cash on hand.
PIMCO’s May 2026 report, titled “AI Credit Expansion,” laid out the dynamic in detail. Capital expenditure is surging while free cash flow is heading in the opposite direction. The report does note that today’s AI-driven financing cycle is more disciplined than historical parallels like the early-2000s telecom boom, when companies borrowed recklessly to lay fiber optic cable that went largely unused.
