Analysis:AI shakeout lands convertible investors better terms
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Nov 12 : The autumn rout in AI stocks has reset the market for convertible securities often used by technology firms keen to raise funds cheaply, in a development that has investors breathing a sigh of relief.
A wave of convertible issues this week bears terms that more evenly balance the priorities of fundraising companies with those of investors who want to participate in further stock-market rallies, analysts said.
Dropbox's $1.1 billion convertible offering, priced on Tuesday, carried a conversion premium of about 25 per cent, about 10 per centage points below the third-quarter average of 35 per cent, according to data from independent advisory firm Matthews South.
Akamai issued two convertible bonds this week, each paying 1 per cent in interest, up from the average rate of 0.75 per cent in the third quarter.
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"I was hoping for an adjustment like the one we had in the past couple of days," said Nicolo Bocchin, global head of fixed income at Azimut Group, referring to the steep selloff in AI companies last week.
AFTER THE DELUGE
Convertible bonds have been particularly attractive to technology companies because they allow firms to borrow at lower interest rates than conventional debt. They give investors the option of converting their debt to shares if the stock price rises above a predetermined level.
Pricing terms were skewed in favor of issuers during a deluge of issuance, much of it by AI players, in the first nine months of 2026, investors said.
US convertible sales increased to about $153.6 billion by the end of October from $98.6 billion over the same period last year, according to data from Dealogic.
"In the past few years, these deals were priced with premiums that I don't remember in history," said Bocchin.
Alphabet sold $19 billion of converts in June and Oracle $5 billion in February, alongside repeated deals from neoclouds such as CoreWeave and Nebius.
"The convert market is quite disproportionately exposed to the AI narrative," said Venu Krishna, head of convertibles strategy at Barclays. About 70 per cent of the record issuance this year is AI-linked and 45 per cent is core AI infrastructure, he added.
This isn't the first year in which terms loosened. In 2025, 46 convertible bond deals carried no interest, according to data from Matthews South, compared with 11 in 2024.
DOSE OF SOBRIETY
But questions about the sustainability of the AI boom have brought forth a reality check. The FTSE Russell US Convertible bonds index has fallen about 17.5 per cent from its all-time peak in June, leaving it up just under 2 per cent for the year.
US convertibles lost more than 6 per cent last month, their worst October since 2008, Barclays data showed.
"We got to a point where there were some frothy new issues being priced at levels that were fairly aggressive. And in these last couple of weeks, the market has responded to that," said Michael Barry, fixed income portfolio manager at Wellington Management.
Buyers of convertible bonds have favored issuers outside data centers recently. Xcel Energy sold $2.2 billion of converts last week and fintech firm SS&C raised about $1 billion in an upsized deal.
Both were trading above their offer prices, said Tracy Maitland, president and chief investment officer at Advent Capital Management.
Eli Pars, co-chief investment officer and co-head of convertible strategies at Calamos Investments, said it was hard to predict when convertible volumes would bounce back.
"But I haven't seen any reason why it should be coming from issuers other than those it's been coming from. That probably means more neocloud issuance."
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