Week Ending: July 24, 2026
Data Center Deluge
News this week suggests U.S. hyperscalers are doubling down on AI. Google raised its projected 2026 capital spending to $195 to $205 billion (from $180 to $190 billion previously). But will the revenue materialize to justify the capex spend? Well, in Q2 2026, Google Cloud revenue surged 82% year-over-year, while its backlog nearly quadrupled during the same period, meaning demand already exceeds available capacity. It’s no surprise then that U.S. data center capacity more than tripled in the last 12 months, with America now home to 93% of global AI compute capacity. That said, the AI boom is more global than it appears. Almost all of U.S. high-tech equipment is imported, driving demand for AI hardware across Asia, while foreign customers pay American hyperscalers to run AI workloads on U.S. infrastructure. However, as AI compute demand shifts from training to inference, developing a good model is not enough: one must also provide the compute necessary to run it in close geographic proximity to the end user. The U.S. AI buildout isn't just getting bigger—it's driven by accelerating demand and revenue growth. And, if AI is a race to deploy intelligence at scale, then the U.S. is the clear leader.
Highlights of the Week:
High Yield: Through this past Monday, the gap between year-to-date bond and loan returns was only six basis points. However, the cadence and pace of returns for the two were meaningfully different, and the sectors have diverged again this week. Through yesterday, bonds are now underperforming loans by 56 basis points on the year. Differences in sector composition and interest rate sensitivity will continue to drive performance differences between these two asset classes.
Corporates: The Technology selloff continues to run its course, with bonds wider this week. Higher-quality names like NVIDIA, Google, and Amazon are wider by 1-10 basis points (bps), while higher-beta names like Oracle and SpaceX are wider by as much as 30 bps on the week.
Municipals: LSEG Lipper reported $174 million of inflows into municipal funds for the week ending July 22, extending the positive streak to 14 consecutive weeks, though demand slowed to just 0.2x the trailing 25-week average. Exchange-traded funds (ETFs) inflows (+$214 million) more than offset modest open-end fund outflows (-$40 million). Separately, LSEG revised June inflows upward to $8.5 billion after a database correction, lifting year-to-date inflows to $58 billion, the second-strongest pace on record.
Equities: The U.S. equity market finished the week little changed, as mixed earnings results drove wide dispersion across individual stocks and sectors, extending a trend that has persisted throughout the year. Sector returns remained highly bifurcated, with Energy and Utilities each gaining more than 2%, while Consumer Discretionary and Communication Services fell more than 5%.
Securitized Products: The asset-backed security (ABS) market is on pace for record issuance once again this year. In consumer-focused securities, the auto and unsecured loan sectors have seen heavy, continuous issuance, while in the commercial sector, the digital infrastructure complex leads the charge. Consumer ABS credit trends remain stable, with unemployment and gas prices the key areas of focus. Data center issuance has doubled since 2024, with some mild softening in spreads due to heavy realized issuance and projected forward supply.
Disclosure: This material reflects the firm’s current opinion and is subject to change without notice. Sources for the material contained herein are deemed reliable but cannot be guaranteed.
