AI Companies Drive Record Wave of Zero-Coupon Convertible Bonds

Tech companies financing the AI boom are turning to an instrument that just a few years ago looked like a relic of the pre-2008 bull market. Zero-coupon convertible bonds, interest-free debt that investors can convert into the issuer's shares, are enjoying their biggest revival in thirty years, driven by the cost of building data centers.

A decade-old instrument returns

Zero-coupon convertible bonds differ from ordinary debt in one respect: they pay no interest. The issuer sells them at face value, typically $100 apiece, and the investor only profits if the company's share price rises enough to make converting the bond into equity worthwhile. Until then, the security acts as a hedge with a so-called bond floor, a guarantee of redemption at face value even if the shares never rise.

According to Dealogic data cited by Bank.pl, 362 active issues of this type are now circulating worldwide, worth a combined $186.8 billion. 2026 alone has brought $80 billion in new zero-coupon issuance, equal to 43 percent of all convertible bond issuance, the highest share in data going back to 1995.

Who's borrowing for free

The main issuers are chipmakers such as Samsung, SK Hynix and Micron, Nvidia itself at a market capitalization of roughly $5.4 trillion, hyperscale cloud companies, neocloud providers, and utilities powering data centers. That list now also includes Oracle with a $5 billion issue, CoreWeave with $4 billion, IREN Limited with $2.6 billion, and NextEra Energy and Duke Energy, which together placed nearly $4 billion to expand generating capacity.

Bank of America Securities analyst Michael Youngworth notes that issuers' motivation departs from the typical logic of the debt market.

A large part of this capital is going toward building capital expenditure, especially in AI, and that's unusual - Michael Youngworth, Bank of America Securities

Companies aren't necessarily coming for capital to meet a specific need, but because money is cheap - Michael Youngworth, Bank of America Securities

The data center math

The scale of financing needs explains why issuers accept the risk of share dilution. According to U.S. Census Bureau data from July 2026, the annual rate of data center construction spending in the US reaches $75 billion, or about $6.25 billion a month. Construction itself, however, accounts for only 20 percent of a project's total cost, the rest goes to servers, processors and memory chips, which need to be replaced far more often than the building.

Venu Krishna of Barclays explains that institutional investor demand for these securities is driven by exposure to the semiconductor sector, which he calls the hottest part of the market, fueled by AI capital spending. He says the typical conversion premium on new issues runs around 40 percent share price appreciation, though some deals require a much larger gain before conversion becomes worthwhile.

The risk on the other side

The market also remembers a cautionary tale from a few years back. In March 2021, Peloton issued $1 billion in zero-coupon convertible bonds with a conversion price of $239 a share, a 65 percent premium over the stock price at the time. By 2024, the company's shares had fallen to $3-4, and Peloton had to buy back $800 million of the debt, paying cash for bonds that were never supposed to carry an interest cost.

Alongside issuers, the market includes arbitrageurs, funds that buy undervalued convertible bonds while simultaneously shorting the issuer's shares, profiting from the mispricing regardless of which direction the stock moves. The dispersion index, which measures how much individual S&P 500 companies diverge from the index as a whole, currently stands at around 50 percent, a level that favors this kind of strategy.

The Polish perspective

Zero-coupon convertible bonds have never appeared on the Polish market. The closest equivalent remains CD Projekt's 2021 issue, worth PLN 2.2 billion, carrying a 0.5 percent coupon and a conversion price of PLN 404 a share, which ultimately was never converted. Between June and August 2026, Polimex-Mostostal carried out small-scale conversions, a total of 15 bonds into roughly 5.75 million shares, but that is a scale nowhere near the billion-dollar issues from US tech companies.

The absence of Polish issuers of this type of debt doesn't mean the phenomenon is irrelevant to the domestic market. Investment funds and brokerages operating in Poland have access to global AI-linked zero-coupon convertible bond issues, and the growing share of this segment in the global corporate debt market affects the valuations of tech stocks listed on the Warsaw exchange as well, through index funds and ETFs.