New AI Bond ETFs Offer a Different Way to Bet on the Boom

The name’s Bond, AI Bond. 

Earlier this month, interest on bonds issued by neocloud company CoreWeave climbed past 15%, pushing the company’s share price down more than 30% and bringing concerns over AI-related debt back into the spotlight. AI capital expenditure is projected to top $1 trillion a year by 2030, with more and more of this spending paid for by issuing debt. Against this backdrop, at least five issuers have recently filed for ETFs focused on AI-related borrowing. 

“If you wanted to take AI exposure, it does seem like you’re getting better pricing to take risk in the credit market compared to the equity market,” said Stephen Coltman, head of macro at 21shares. But given the wide variety of debt issued by AI companies, due diligence is critical. “Wrapping it in an ETF and saying, ‘This is AI debt’ doesn’t tell you the full story of what the risks really are and where you stand in the capital structure.” 

Plus, during a crisis, credit markets’ liquidity tends to freeze, which means that investors might be forced to trade at a discount. “If you have redemptions and the underlying market is just basically frozen up, it’s difficult to get people in and out,” Coltman said.  

Leverage the Moment 

Even before the CoreWeave news, AI debt has been a contentious topic, and while not every product is likely to succeed, demand is strong enough that there may be one or two winners, said James Seyffart, ETF analyst at Bloomberg Intelligence. “There’s plenty of people with bullish and bearish views on these things right now, and anything along those lines tends to do well in an ETF wrapper,” he said. 

There are some differences in the funds’ makeup that could dramatically affect performance. “Your everyday investor is probably going to just see the names of these and not really understand how different they all are,” Seyffart said. “Much like anything we’re looking at with an ETF, you really need to look under the hood and try to understand what the strategy is doing and what it’s holding.” 

There are a few differences already clear from the preliminary filings: 

• The actively managed BondBloxx AI Infrastructure Debt ETF, the Allspring AI Infrastructure Bond ETF and the Bitwise AI Bond ETF will invest in a mix of debt products issued by AI infrastructure companies, including noninvestment grade debt, securitized debt obligations and debt issued by special purpose vehicles. 
• The Defiance AI Infrastructure Bond ETF will similarly invest in a mix of debt, but is index-tracking instead of actively managed. 
• The Proshares AI Hyperscaler Bond ETF is index-tracking and appears to be the only fund that will limit its holdings to investment-grade bonds issued by hyperscalers.   

Bond Appetit: These funds open up a path to investing in corporate debt that isn’t usually possible outside the ETF wrapper, and as bond funds, they’re inherently a less risky way to play the AI theme. “This, theoretically, should be a lot less risky than buying the equity, because a lot of these are going to be asset-backed or backed by large companies,” Seyffart said, although he noted they’re likely to be more volatile than a typical bond product. 

But how much AI debt, if any, is appropriate for retail investors? “There’s so much debt coming out. There’s a lot out there already, and there’s so much more in the works that that market is already challenged,” said Jay Goldberg, senior analyst of semiconductors and electronics at Seaport Research Partners. “There’s still appetite, but I definitely think that yields are going to start going up.”