For most of the past decade, technology companies occupied a singular and enviable position in financial markets: capital-light, cash-generative, and cheap to finance. That structural advantage is now eroding, and the speed of the reversal deserves serious attention from advisors and investors alike.
Zachary Hill, CFA, Head of Portfolio Management at Horizon Investments, puts the numbers in sharp focus. Hyperscalers including Oracle, Alphabet, Microsoft, Amazon, and Meta are on pace to invest more than $750 billion in AI infrastructure this year alone, "an amount equal to more than 2% of the U.S.'s entire annual gross domestic product." That single figure reframes the conversation. This is not incremental R&D spending. It is a generational capital deployment cycle, compressed into a handful of quarters.
The structural consequences are already visible in credit markets. Historically, tech firms carried lower borrowing costs than the broader investment-grade universe, with credit spreads running roughly 14% below those of similarly rated companies. That discount reflected their low physical asset intensity and strong free cash flow generation. As Hill notes, the firms "often self-funded new spending initiatives using the ample free cash flow they generated." The data centers, chips, and cooling infrastructure now required to power AI have changed that calculus entirely. Tech has crossed from the asset-light world into what Hill describes as looking "decidedly old-economy" in its capital requirements.
The result is a premium that should give fixed income investors pause. "Tech now pays a 16% premium to issue debt relative to the broader market," Hill says. That is not a marginal shift. It represents a complete inversion of the financing advantage that, for years, quietly reinforced the bull case for owning technology at virtually any valuation.
When the Market Notices
The repricing of tech risk is no longer theoretical. Recent earnings confirmed it in real time. Alphabet shares fell 7% after reporting that, for the first time since 2004, Google spent more cash during a quarter than it generated. The symmetry is notable: a company that built its franchise on seemingly limitless free cash flow is now drawing down rather than building up. Meanwhile, SpaceX, building data centers in parallel with its aerospace ambitions, has seen its shares fall roughly 50% from their post-IPO high. Neither outcome would have been plausible within the conventional tech investment narrative of three years ago.
These are not isolated data points. They are early market signals of a broader reassessment.
The Dispersion Thesis
Hill's core implication for portfolio construction is clear. "It's likely becoming more important," he says, "to assess individual tech companies' spending, debt levels and growth prospects rather than expect tech stocks as a group to rise and fall in lockstep." This is a significant departure from an investment environment in which sector-level bets on technology consistently rewarded passive, broad exposure. The dynamics that made such exposure safe, including low debt, high free cash flow, and cheap financing, have shifted materially.
The active asset allocation and security selection discipline that many advisors have long advocated as a theoretical advantage now has a concrete, quantifiable reason to exist within the technology sector specifically. As Hill frames it, "the ability to be highly selective about both equity and fixed income investment holdings" is "a significant advantage in today's market." That selectivity applies on both sides of the balance sheet: equity positions that assume all large tech companies will benefit equally from AI, and fixed income positions that assume tech credit carries the same spread profile it did five years ago, are both operating on outdated assumptions.
Five Key Takeaways for Advisors and Investors
- The capital-light advantage that made tech cheap to finance for a decade has reversed. At a 16% debt issuance premium to the broader market, tech is no longer the low-cost borrower it once was, and credit risk in tech fixed income deserves fresh scrutiny.
- AI infrastructure spending is structurally different from prior tech capex cycles. At $750 billion projected for 2026 alone, and more than 2% of U.S. GDP, the scale places unprecedented pressure on free cash flow even for the largest platforms.
- Equity risk within the technology sector is now increasingly company-specific. The era of undifferentiated sector-level outperformance is giving way to meaningful dispersion between companies that can self-fund and those that cannot.
- Credit spread monitoring matters more than it used to for equity investors in tech. Rising borrowing costs are a leading indicator of financial stress, and the spread premium Hill identifies has historically preceded equity multiple compression in capital-intensive industries.
- Active selectivity in both equity and fixed income holdings is now a genuine edge. Passive or sector-indexed exposure to technology no longer captures the same risk/reward profile it delivered during the capital-light era.
Footnote:
Hill, Zachary. "Reassessing Risk in Tech Stocks." Horizon Investments, 29 July 2026, www.horizoninvestments.com/reassessing-risk-in-tech-stocks/.
