AI Boom Propels US Convertible Bond Market Toward Second Record Year

The artificial intelligence frenzy that dominated equity markets in 2025 is now fueling a surge in convertible bond issuance, with AI-linked companies driving US sales toward another banner year, according to market data tracked by Bloomberg.

The trend marks a notable shift in how AI companies are financing their growth, moving beyond traditional equity raises to tap the convertible bond market—a hybrid instrument that offers investors the safety of fixed income with the upside of equity conversion. For corporate finance chiefs, the pattern signals both opportunity and a potential warning: when hot sectors flood into converts, it often means equity valuations have stretched to the point where straight debt becomes unpalatable and new equity would be too dilutive.

The convertible bond structure has become particularly attractive for AI companies navigating the tension between massive capital needs and sky-high stock prices. These instruments allow companies to raise cash at lower interest rates than straight bonds while giving investors a chance to participate in further stock appreciation. The catch, of course, is that if the shares keep climbing, those bonds eventually convert to equity—diluting existing shareholders, a calculation every CFO presenting to the board must now defend.

What makes this surge notable isn't just the volume, but the composition. AI-linked issuers span the spectrum from established tech giants adding AI capabilities to pure-play startups that have achieved sufficient scale to access public debt markets. (The definition of "AI-linked" here matters: Bloomberg's tracking appears to include both companies building AI infrastructure and those deploying it, though the source data doesn't break out the split.)

The convertible bond market has historically served as a barometer for investor confidence in high-growth sectors. During the dot-com boom, converts flooded the market. The same pattern emerged during the clean energy wave of the late 2000s and again during the cloud computing transition of the 2010s. Each time, the surge in issuance coincided with peak valuations—and each time, finance teams that locked in favorable terms early looked prescient when the cycle turned.

For CFOs evaluating their own capital structure, the AI convert wave presents a useful benchmark. If your company has any credible AI story, the market is currently receptive. But the same market dynamics that make issuance attractive today—low conversion premiums, tight spreads—also suggest investors are pricing in continued growth that may or may not materialize.

The mechanics here are worth understanding: a typical AI company convert might carry a 2-3% coupon (well below what straight debt would cost) with a conversion premium of 20-30% above the current stock price. If the stock hits that conversion price, bondholders swap their debt for equity. If it doesn't, the company still owes the principal. It's optionality for investors, funded by cheaper borrowing costs for issuers.

The key question for 2026 is whether this record pace can sustain itself. Convertible issuance tends to be self-limiting: as more companies tap the market, the investor base gets saturated, terms tighten, and the window eventually closes. The fact that we're heading toward a second consecutive record year suggests either an unusually deep pool of convert-hungry investors or an unusually large number of AI companies that need cash and have exhausted other options.

What finance leaders should watch: conversion prices on these new issues. If AI stocks continue their run, a wave of conversions could hit in 2027-2028, diluting shareholders just as growth rates potentially normalize. If stocks stall, companies face refinancing risk on instruments they issued assuming continued momentum.

The convert market, in other words, is making a very large bet on the AI narrative holding up. Someone's going to be right about that bet. The question is whether it's the issuers or the investors.