The simple version

A company that needs cash has two familiar options. It can borrow, which means paying interest and repaying the principal. Or it can sell new shares, which means no repayment and a smaller ownership slice for everyone who already holds stock.

A convertible bond is a third thing that borrows from both. It is debt that pays interest, and it carries a right to exchange it for shares under set conditions. The company gets cheaper borrowing, and the price of that discount is agreeing in advance to potential dilution.

The numbers

• The Financial Industry Regulatory Authority defines a convertible bond as a bond with the option to convert into shares of common stock of the same issuer at a pre-established price (FINRA)
• Year to date, about $135 billion of convertible bonds have been issued in the United States, with just under half of that supply coming from the artificial intelligence industry, according to Goldman Sachs credit analyst Spencer Rogers in a client note dated Wednesday, September 9, 2026 (Goldman Sachs client note, as reported)
• That total has already surpassed any previous full-year figure, per the same note (Goldman Sachs client note, as reported)
• The note describes the majority of these offerings as coming from smaller issuers with high-yield credit ratings, with the largest technology companies more recently issuing substantial amounts (Goldman Sachs client note, as reported)
• A convertible carries an interest rate and a conversion price, and the second is what determines whether the debt ever becomes stock (definition)
• If the share price never reaches the conversion price, the bond is repaid like ordinary debt and no dilution occurs (definition)
• These issuance figures are a bank's research rather than an official statistic, and no government agency publishes convertible issuance totals (sourcing note)

What each side is actually buying

The instrument works because the two parties want different things and each is willing to give up something to get them.

The company wants cash without a heavy interest burden, which matters enormously when it is spending faster than it earns. A convertible lets it borrow at a lower rate than straight debt would carry, because the lender is receiving something besides interest.

The lender wants the safety of a bond with a share of the upside. If the stock stays flat or falls, the bond is repaid and the lender collected interest along the way. If the stock rises past the conversion price, the lender can convert and hold equity worth more than the loan was.

So the trade is explicit rather than hidden. Lower interest today in exchange for the possibility of issuing shares later at a price fixed now. Whether that is a good trade depends entirely on what the share price does, which nobody knows when the deal is struck.

Why this instrument and why now

The pattern in the reporting is specific: just under half of this year's convertible issuance is tied to artificial intelligence, and the buildout it finances has an unusual financial shape.

Data centers, chips, and power infrastructure require enormous cash up front, and the revenue justifying them arrives later. A company in that position wants money without a heavy fixed coupon draining cash while it builds, which is exactly what a convertible provides.

It also connects to something we covered separately. When a company announces an equity offering, the stock frequently falls because ownership is being divided further right now. A convertible defers that: the dilution is agreed to but does not occur unless the shares appreciate past the conversion price. The company has traded a certain cost today for a conditional one later.

The note also describes most of these offerings coming from smaller issuers with high-yield credit ratings, with the largest technology companies more recently issuing substantial amounts. That distinction matters: a smaller company with limited access to cheap borrowing has a different reason for choosing this instrument than one with a large balance sheet.

The Real Cost lens on dilution that has not happened yet

If you hold a broad index fund, these instruments are inside it, and the effect on ownership is worth understanding precisely.

• A convertible outstanding is a commitment to potentially issue shares later, so the ownership dilution is contingent rather than immediate
• That means share counts can rise in the future for reasons decided in the past, without any new announcement at the time it happens
• The condition for conversion is generally the share price rising, so dilution from a convertible tends to arrive during good outcomes rather than bad ones
• None of that is a reason to act on anything, and no reader needs to track any company's conversion terms

The useful idea is that a share count is not fixed. It moves for reasons including offerings, buybacks, and instruments like this one that were agreed to years earlier and take effect quietly when a condition is met.

What this means

When a company announces financing, the instrument matters as much as the amount. Straight debt means a fixed obligation. An equity offering means immediate dilution. A convertible means cheaper debt with dilution attached to a condition.

The broader point is that corporate financing is a set of trades between certainty and cost, and companies pick along that spectrum based on what they can afford to promise. A record year for one instrument usually says something about the conditions issuers are operating in.

What this is NOT

This is not advice to buy, sell, or hold any security, bond, or fund, and no company is named or evaluated. This is not a prediction of issuance, share prices, or the artificial intelligence buildout. The issuance figures come from a Goldman Sachs client note as reported, and are a bank's analysis rather than an official statistic: no government agency publishes them, and they cannot be checked against a public series the way a government figure can. Terms vary between individual convertible offerings, and the general description here does not govern any particular one. This is not investment or financial advice of any kind.

Sources

• Financial Industry Regulatory Authority, bonds and key terms: https://www.finra.org/investors/investing/investment-products/bonds/key-terms
• Financial Industry Regulatory Authority, bonds overview: https://www.finra.org/investors/investing/investment-products/bonds
• U.S. Securities and Exchange Commission, investor education on convertible securities: https://www.investor.gov/introduction-investing/investing-basics/glossary/convertible-securities
• U.S. Securities and Exchange Commission, EDGAR full-text search: https://www.sec.gov/edgar/search/