US companies issued $57 billion in convertible bonds in 2026 — a record for that period. The reason: companies building AI infrastructure need cheap ways to raise money for expensive projects that might pay off big, or might not.

Total convertible bonds outstanding now exceed $300 billion, the highest level since the pandemic. Global issuance is running at its fastest pace in 24 years. This trend has been building for months, not just weeks.

What Is a Convertible Bond?

A convertible bond is a hybrid. Think of it as a loan with an attached lottery ticket. The bondholder receives regular interest payments like any lender. But they also get the right to convert that bond into company stock at a preset price. If the stock soars, they convert and profit. If it doesn't, they keep their interest payments and get their money back.

For companies, the benefit is lower interest costs. Since bondholders get a chance at stock upside, they accept lower interest than they would demand on a regular loan. That saves cash when a company is spending heavily on long-term projects.

Alibaba used this repeatedly. The company raised $5 billion via convertible bond in May 2024, then $1.5 billion in July 2025, and announced a $3.2 billion convertible offering in September 2025 for cloud expansion. Three deals in 16 months, all the same type.

Why Now?

Interest rates matter. When rates were near zero, regular loans were already cheap. There was no reason to borrow in a complex way. But after 2022, rates rose sharply. Now a regular corporate loan costs much more in interest. That makes a convertible bond — with its lower interest rate — look attractive by comparison.

At the same time, companies are spending heavily on AI datacenters and computing infrastructure. These projects cost billions upfront but may not generate profits for years. A convertible bond lets companies borrow cheaply today while betting that rising stock prices — or eventual profits from AI — will make the equity conversion painless later.

FactSet data from December 2025 shows convertibles outstanding have crossed $300 billion. LSEG data from April 2024 documented this surge starting early — over $20 billion issued in the US in just the first quarter of 2024.

One risk worth watching: specialized investors called convertible arbitrage funds buy these bonds and help create demand. But these investors can only absorb so much. If companies keep issuing at record pace, demand may lag and terms could turn worse for borrowers. That would signal the market is near saturation.

In essence, convertible bonds are betting that AI investments will work out. Bond buyers are pricing in success. The actual profits still need to happen.