European pension funds and insurers are increasingly financing the US artificial intelligence boom, buying long-dated bonds that credit rating agencies regard as safe.
Hyperscaler debt “may look like a possible alternative to some safe-haven style securities”, ECB analysts wrote in a blog on Monday (31 August).
But they also warned that these bonds could become less safe as AI companies continue to take on more debt in the coming years.
Hyperscaler debt refers to corporate bonds and loans issued by Big Tech companies such as Microsoft, Meta, Google, Amazon, and Oracle to finance massive costs of building AI and cloud infrastructure.
Ratings may be based on “assumptions on future revenue growth and leverage which may not stand the test of time”, creating a risk of “mispricing of credit risk,” the ECB’s financial experts wrote.
