The Convertible Boom

A convertible bond is a compromise written as a security. The issuer borrows at a lower coupon than straight debt would require; in exchange, the lender receives an option to turn the bond into stock if the share price rises far enough. For years it was a niche instrument, used mostly by growth companies whose credit was too thin for the bond market. In 2026 it became one of the main ways the largest companies in the world pay for the AI buildout.

The numbers have broken one record after another. US convertible issuance passed $120 billion in 2025, a full-year record. By early September 2026, US-listed companies had raised about $131 billion, per Bloomberg data, with August alone contributing roughly $25 billion. Globally, the second quarter set a quarterly record of $84.6 billion across 96 deals, up 67 percent from a year earlier, according to Numerix's issuance review. North American issuers accounted for $64.2 billion of it.

The size of the deals changed with the size of the issuers. Alphabet's $19.3 billion mandatory convertible in the second quarter is the largest convertible transaction on record, and 23 deals that quarter exceeded $1 billion. Bank of America and Barclays estimate that roughly half of this year's US issuance is tied in some way to AI: hyperscalers and chipmakers, but also the data-center developers, cloud providers and utilities building the physical layer. Oracle, CoreWeave, NextEra Energy and IREN all came to market in the first half of the year.

The appeal is arithmetic. With the 10-year Treasury yield above 5 percent and the Federal Reserve raising rates again, straight debt is expensive, and new stock dilutes holders right away. A convertible sits between the two. It can carry a coupon near zero — 44 of the 96 deals in the second quarter priced at 0 percent — because buyers are paying for the conversion option. Those buyers are largely hedge funds trading the volatility embedded in the bonds, alongside long-only managers who want equity-like exposure with a bond's place in the capital structure.

The trade-off goes the other way, too. A convertible postpones dilution rather than removing it, and a wave of issuance at today's valuations is a wave of potential shares in the future. Convertibles are a sign of confidence in the AI buildout, and also a hedge on it. Issuers are betting the stock will rise far enough to convert, and investors are keeping their claim as creditors in case it does not.