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Global Growth on Track…
In the absence of hard US economic data, conviction about global economic growth remains elusive. Yet, as we noted last week, there are signs that global growth is trending in a positive direction. The latest US Institute for Supply Management (ISM) Services survey came in marginally stronger than expected, providing a sharp contrast to the previous week’s soft manufacturing reading. Across Asia, technology industry indicators from South Korea and Taiwan continue to show surprising strength, hinting at an underlying resilience in global trade and supply chain activity. News this morning, we may have an agreement in Congress for a re-opening of government should help.
Chart 1: US Economic surprise Index Positive but Muted by Lack of Hard Data
Citigroup Index of economic surprises for the US economy
Source: Bloomberg
…but Central Bankers Show Caution
Central bankers, however, are exercising greater caution. While the Bank of Mexico delivered a 25-basis-point rate cut, its statement signalled a more measured approach to easing going forward. The Bank of England’s interest rate decision was finely balanced, with the marginal voter tipping the majority in favour of holding rates at 4.0%. Poland’s central bank reduced rates by 25 bps, in line with expectations. Most other central banks, however, are choosing to wait and see.
The broader message is one of hesitation. Policymakers are wary of cutting rates prematurely amid lingering global uncertainty – not least around tariff policy – and tentative signs of improving growth. With a few regions showing upward surprises in economic activity, the bias among central bankers is to stay patient, preferring to hold rates steady rather than risk reigniting inflationary pressures.
Technology Sector – When the Self-Funded Turn Borrower
Last week’s sell off of AI related stock grabbed headlines. We would distinguish between healthy profit taking and structural worries. On the latter we have one growing worry with technology companies recently bringing a wave of bond issuance to the market. We sense a notable change underway that could significantly increase the risks of investing in the technology sector in the years to come.
There was a time when technology companies, especially the bigger ones, were seen as paragons of self-sufficiency. Margins – not money markets – powered their growth. They sat on mountains of cash, boasted double-digit free-cash-flow yields, and told investors that debt was something for lesser mortals. The model proved effective when incremental investment returned multiple times the capital.
That story has now changed. In 2025 alone, the world’s largest technology firms have turned to bond markets on an extraordinary scale. Meta Platforms is preparing to raise up to US$30 billion through a six-part deal with maturities ranging from five to 40 years. Oracle has already sold around US$18 billion, including bonds of 40-year maturities. In Asia, Tencent is issuing its first bonds in four years, across tenors of five, 10, and 30 years. The sums are eye-watering: US technology issuance between September and October 2025 reached roughly US$75 billion, more than twice the sector’s average annual total in the previous decade.
An industry that prided itself on free cash flow is now financing its future with coupons and covenants. The shift marks a profound change in how technology scales.
When Growth Met Leverage: Historical Precedents
There is nothing new or unprecedented about a growth industry discovering debt. However, history shows a consistent pattern that we need to pay heed to. The transition from self-funded expansion to a situation where externally financing dominates often ends in a reckoning.
The railway boom of the late 19th century was a remarkable example of innovation and optimism. Profits from early lines easily funded extensions; this led investors to assume that the returns were endless. However, when those returns shrank, companies turned to bonds to satiate their funding needs. By the 1890s, the US rail network was saturated and heavily in debt; the Panic of 1893 wiped out a third of the industry.
A century later, the telecoms sector repeated the same mistake. Flush with cash in the 1990s, the likes of Vodafone and Deutsche Telekom borrowed heavily to buy 3G spectrum licences and build networks. Between 1996 and 2002, telecoms firms issued more than US$600 billion in bonds. When revenue growth disappointed, equity values collapsed, and it took a decade for balance sheets to recover.
Chart 2: The Rise and Fall of the Global Telecoms sector
price index for MSCI Global Telecoms rebased to Jan ’95=100
Source: Bloomberg
Even the oil majors of the 1970s succumbed to the ills of binge borrowing. Once self-funded, they borrowed heavily for deep-water exploration as costs soared and nationalisations limited access to easy reserves. By the early 1980s, leverage had doubled and returns fell below the cost of capital. Debt had turned the cash machines of the post-war era into financial plodders.
Each episode followed the same arc: a dominant, cash-rich industry faces a step-change in capital intensity; internal cash flows can’t keep pace; debt bridges the gap until it doesn’t.
Is This Time Different?
There are reasons to hope that the technology sector’s borrowing binge is less dangerous, though none are entirely convincing. The capex requirements are vast, propping up AI infrastructure alone could consume US$3 trillion globally by 2028, yet the sector’s cash balances are equally impressive. Meta, Alphabet, Apple, and Microsoft collectively hold more than US$400 billion in liquid reserves. Borrowing, for them, is less about desperation and more about optimisation: locking in long-term money at spreads near record lows (around 80 bps over Treasuries for top-tier names).
Still, the pattern looks uncomfortably familiar. The maturities are lengthening into corporate-industrial territory (20, 30, even 40 years), suggesting managers believe current cash flows can underwrite projects that may take decades to mature. Telecoms made the same claim in 2000; railways said it in 1880. The danger is not insolvency but sclerosis: when debt becomes the default source of capital, management behaviour changes. Investment decisions begin to address the needs of creditors as much as those of customers.
Technology, the great disruptor, may find itself bound by the same capital-structure constraints as the industries it once disrupted.
Gary Dugan – Investment Committee Member
Bill O’Neill – Non-Executive Director & Investor Committee Chairman
10th November 2025
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