The AI industry has discovered its favorite financial instrument, and it’s not equity. It’s convertible bonds.
US convertible bond issuance hit roughly $34 billion in just the first four months of 2026. That’s more than double the same period last year. And here’s the kicker: about half of those deals are tied to AI companies.
Why convertible bonds, specifically
Convertible bonds are a hybrid instrument. They function like regular debt, paying interest to holders, but they come with an option to convert into company stock at a predetermined price. Companies get to borrow at absurdly low interest rates because investors are willing to accept less income in exchange for that equity upside. Some AI issuers are securing funding with coupons as low as 0%. Zero percent. As in, the company pays no interest at all, and investors are still lining up.
Convertible bonds let companies raise massive sums without immediately diluting existing shareholders. Traditional stock offerings dump new shares on the market right away. Convertibles only dilute if and when the stock price hits the conversion threshold. Straight debt loads up the balance sheet with obligations that have to be paid regardless of business performance. Convertibles offer a pressure valve: if the company does well, bondholders convert to equity and the debt effectively disappears.
