Key takeawayBofA’s Hartnett has shifted from shorting to favoring tech debt, citing yields following the bonds’ sharp underperformance and the credit-friendly signal from Meta’s equity financing, though financing and cash-flow pressures continue to constrain the credit market.
Why has Hartnett, who once recommended shorting tech debt, shifted to buying?
- In November 2025, Hartnett recommended shorting the bonds of big tech companies. Now, with US tech debt down 9% year to date and its returns relative to the investment-grade bond index at a 30-year low, he recommends buying attractive opportunities in tech debt.
- BofA said bond issuance by AI-focused big tech companies rose to 182 billion dollars in 2026, from 17 billion dollars in 2024. After bonds were repriced, yields on the big tech bonds listed by BofA reached 6%–8%, making them more attractive.
- Meta plans to raise 35 billion dollars through common stock and mandatory convertible preferred stock, and up to 60 billion dollars through an at-the-market offering of non-voting Class C shares. Hartnett believes this signals that the company is placing greater emphasis on credit investors.
Do cheaper bonds mean the pressure is over?
- Hartnett previously identified cuts to AI capital spending or large-scale equity financing as possible conditions for debt spreads to peak. But as of Thursday, investment-grade bond spreads had widened again and were near recent highs, while credit default swap spreads linked to data centers were also widening.
- BofA estimates that capital spending by AI-focused big tech companies will rise from 240 billion dollars in 2024 to 1.2 trillion dollars in 2027, while free cash flow will fall from 240 billion dollars to negative 180 billion dollars. High yields will increase financing constraints and put pressure on AI stocks.
- Hartnett believes risk assets and AI need lower bond yields and easier financial conditions; the potential relief factors he identified include an easing of geopolitical tensions, a sharp fall in oil prices and an end to interest rate hikes in the first half of 2027.
What does the change in financing methods mean for stocks?
- BofA data show that big tech companies issued 89 billion dollars in equity in 2026; meanwhile, share buybacks annualized at the year-to-date pace were just 14 billion dollars, below the 105 billion dollars for all of 2024.
- On that basis, Hartnett believes the era of large-scale buybacks is ending: companies are shifting from repurchasing shares to issuing them, increasing the supply the market must absorb and changing a source of funding that previously supported share prices.
