The AI industry has discovered its favorite financial instrument, and it’s not equity. It’s convertible bonds.

US convertible bond issuance hit roughly $34 billion in just the first four months of 2026. That’s more than double the same period last year. And here’s the kicker: about half of those deals are tied to AI companies.

Why convertible bonds, specifically

Convertible bonds are a hybrid instrument. They function like regular debt, paying interest to holders, but they come with an option to convert into company stock at a predetermined price. Companies get to borrow at absurdly low interest rates because investors are willing to accept less income in exchange for that equity upside. Some AI issuers are securing funding with coupons as low as 0%. Zero percent. As in, the company pays no interest at all, and investors are still lining up.

Convertible bonds let companies raise massive sums without immediately diluting existing shareholders. Traditional stock offerings dump new shares on the market right away. Convertibles only dilute if and when the stock price hits the conversion threshold. Straight debt loads up the balance sheet with obligations that have to be paid regardless of business performance. Convertibles offer a pressure valve: if the company does well, bondholders convert to equity and the debt effectively disappears.

The deals driving the surge

CoreWeave completed a $4 billion convertible bond issuance, with individual tranches ranging from $2 billion to $3 billion and coupons around 1.75%.

Broader hyperscaler bond issuance, including deals from giants like Alphabet and Amazon, reached $121 billion in 2025. That figure is four times the average annual issuance from those same types of firms over the preceding five years.

Amazon priced a record euro-denominated deal worth €14.5 billion in March 2026, tapping European debt markets to diversify its funding sources.

What this means for investors

The 0% coupon deals deserve particular scrutiny. Investors buying these instruments are making a pure bet on stock appreciation. If the underlying equity stagnates or falls, they’re left holding a bond that pays no income and may trade below par.

With $34 billion in US convertible issuance in just four months, the market could eventually reach a saturation point. Too much supply without corresponding demand growth typically means issuers will need to sweeten terms, either by raising coupons or lowering conversion premiums.