"There's a frenzy of development going on to support the AI revolution, and with it an insatiable demand for debt to fund it. Some estimate the overall infrastructure roll-out cost could reach $10 trillion, and with so many lenders lining up to throw cash at the assets, the fear is a bubble is building that could eventually leave equity and credit players facing substantial pain."
"Given the flood of money going in, another danger is that there will be less credit available when facilities being constructed now using loans are in need of refinancing in three to five years' time. There's also growing concern about the level of leverage, particularly given the technology may underperform its high expectations. In such a scenario, lenders may be even more reluctant to refinance, and companies would have to find additional equity or pay more to borrow."
Examples include data center founders accruing large valuations before facilities exist, borrowers requesting loans covering 150% of construction costs, and companies using financial engineering to keep liabilities off balance sheets. A frenzy of development is underway to support AI, creating insatiable demand for debt and estimates that infrastructure roll-out costs could reach $10 trillion. The flood of capital risks building a bubble that could leave equity and credit investors facing substantial losses if supply outpaces demand. Potential problems include a future credit squeeze when projects need refinancing in three to five years, elevated leverage, and technology underperformance that could deter lenders.
Read at Fortune
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