Bond Giant Positions for AI Bubble Burst: Buys Credit Debt to Weather Deep Cycle

June 7. DoubleLine Capital and Oaktree Capital are positioning themselves ahead of a potential AI bubble burst with a strategy of selectively picking bonds that can weather a deep credit cycle. Robert Cohen, DoubleLine Capital’s fund manager, told the Bloomberg Global Credit Forum that an AI bubble is almost certain to burst—putting the probability at around 100%. He argues that as tech companies keep pouring massive amounts of capital into the space, the market will inevitably hit bubble territory in the coming months or years. Cohen defines a credit bubble as investors financing companies that need actual growth to pay off their debt, a path that has historically killed off tech booms. As such, he recommends targeting companies that can survive via structural safeguards or strong balance sheets, rather than betting on future growth projections. The AI industry’s leverage has expanded at an unprecedented pace. According to Barclays, U.S. mega-cap tech firms have issued over $155 billion in unsecured bonds globally year-to-date—a 45% jump from last year. Bloomberg Intelligence projects that corporate AI capital spending will hit roughly $50 trillion over the next five years, with most of that cost coming from debt financing. This week alone, Hut 8 raised roughly $4 billion in investment-grade bonds to fund an NVIDIA-linked data center project—demand was four times the offer size. Meanwhile, Anthropic’s $36 billion bond sale for chip procurement is nearing completion. Christina Lee, Oaktree’s Co-Head of Private Credit, notes that data center financing offers huge opportunities, but requires careful vetting—because it’s far from clear which players will succeed and which will fade. Dan Ivascyn, PIMCO’s Group Chief Investment Officer, is even more cautious, warning that overallocating to AI is not wise. That said, given the sector’s massive financing needs, value can still be unlocked while maintaining a defensive investment stance. He added a caution: if defaults occur, losses could be larger than historical averages. Bridgewater Associates’ Ray Dalio has warned that large-scale tech revolutions tend to spark excessive speculation, leaving companies stuck between two bad choices: either spend heavily to capture market share, or fall behind by holding back on investments.