Two data center billionaires minted before anything is even built. A borrower seeking a loan for 150% of the construction cost. And companies that are using financial engineering to keep liabilities off their balance sheets.
For the skeptics, those are some of the examples of why the artificial intelligence data center boom is getting out of hand.
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.
“One key risk to consider is the possibility that the boom in data center construction will result in a glut. Some data centers may be rendered uneconomic, and some owners may go bankrupt,” Oaktree Capital Management LP co-founder Howard Marks wrote in a note this week. “We’ll see which lenders maintain discipline in today’s heady environment.”
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.
