Credit investors are pouring billions of dollars into artificial intelligence investments, just as industry executives and analysts are raising questions about whether the new technology is inflating another bubble.
Altogether, it’s enough to make credit watchers nervous.
The exposure here comes in many shapes and sizes, with varying degrees of risk. Many large tech companies — the so-called AI hyperscalers — have been paying for new infrastructure with gold-plated corporate debt, which is likely safe due to the existing cash flows that secure the debt, according to recent analysis from Bloomberg Intelligence.
Much of the debt funding now is coming from private credit markets.
“Private credit funding of artificial intelligence is running at around $50 billion a quarter, at the low end, for the past three quarters. Even without factoring in the mega deals from Meta and Vantage, they are already providing two to three times what the public markets are providing,” said Matthew Mish, head of credit strategy at UBS.
And many new computing hubs are being funded through commercial mortgage-backed securities, tied not to a corporate entity, but to the payments generated by the complexes. The amount of CMBS backed by AI infrastructure is already up 30%, to $15.6 billion, from the full year total in 2024, JPMorgan Chase & Co. estimated this month.
Sorid and a colleague at Citi put out a report on Aug. 8 focusing on the particular risks for the utility firms that have boosted borrowing to build the electrical infrastructure needed to feed the power-hungry data centers. They and other analysts share a commonly held concern about spending so much money right now, before AI projects have shown their ability to generate revenue over the long term.
“Data center deals are 20 to 30 year tenor fundings for a technology that we don’t even know what they will look like in five years,” said Ruth Yang, global head of private market analytics at S&P Global Ratings. “We are conservative in our assessment of forward cash flows because we don’t know what they will look like, there’s no historical basis.”
But the fire hose of money is unlikely to stop anytime soon.
“Direct lenders are constantly raising capital, and it has to go somewhere,” said John Medina, senior vice president in Moody’s Global Project and Infrastructure Finance Team. “They see these hyperscalers, with this massive capital need, as the next long-term infrastructure asset.”
