Earlier this month, the interest rate on bonds issued by cloud services startup CoreWeave surpassed 15%, causing its stock price to drop more than 30% and reigniting concerns about AI-related debt. By 2030, AI capital expenditures are projected to exceed $1 trillion annually, with an increasing share of these expenses financed through bond issuance. In this context, at least five issuers have recently filed applications for ETFs focused on AI-related debt.
Stephen Coltman, Head of Macro at 21Shares, said: “If you want exposure to AI, the pricing of risk in the credit market appears significantly more attractive compared to the equity market.” However, given the wide variation in types of debt issued by AI companies, due diligence is essential. “Packaging it as an ETF and calling it ‘AI debt’ doesn’t fully convey the actual risks or where you stand in the capital structure.”
In addition, during crises, liquidity in credit markets often freezes, meaning investors may be forced to trade at a discount. “If there are redemptions and the underlying market has essentially frozen, it becomes difficult to move money in and out,” says Coltman.
Even before the recent news about CoreWeave, AI-related debt has been a contentious topic. James Seyffart, an ETF analyst at Bloomberg Intelligence, said that while not every product may succeed, demand is strong enough that one or two winners could emerge.
He said, "There are many people with both bullish and bearish views on this type of product, and anything tied to such a theme packaged as an ETF often performs well."
Differences in the composition of these funds can significantly impact performance. Seyffart said, “Retail investors may only see the names of these products without truly understanding how different they are from one another. Just as with any ETF, you need to look under the hood and strive to understand what strategy it employs and what it holds.”
Some differences are already apparent from the preliminary filing documents:
- The actively managed BondBloxx AI Infrastructure Debt ETF, Allspring AI Infrastructure Bond ETF, and Bitwise AI Bond ETF will invest in a variety of debt instruments issued by AI infrastructure companies, including non-investment-grade debt, securitized debt instruments, and debt issued by special-purpose vehicles.
- The Defiance AI Infrastructure Bond ETF will also invest in a variety of debt instruments, but it tracks an index rather than employing active management.