The Concrete Reality of the AI Boom
The narrative of Artificial Intelligence is typically written in code, but its immediate future is being written in concrete, copper, and steel—and it is being funded by a historic wave of corporate debt. While equity markets fixate on the generative capabilities of software, the credit markets are grappling with the physical costs of the revolution. New data reveals that the AI infrastructure build-out is projected to cost upwards of $10 trillion, triggering a fundamental shift in how the technology sector approaches leverage.
According to a UBS report, AI-related project financing has surged to $125 billion year-to-date, a dramatic escalation from just $15 billion in the same period in 2024. This capital is not flowing into algorithms, but into the massive data centers and energy grids required to power them. The sheer volume of demand has caused “indigestion” in public bond markets, with major hyperscalers—including Oracle, Meta, and Amazon—issuing nearly $90 billion in investment-grade bonds since September to fund this race for capacity.
The Great Risk Shift
A curious structural evolution is occurring beneath the headline numbers. As balance sheets swell, major technology firms are increasingly maneuvering to limit their direct financial exposure. Recent reporting describes a trend of “risk offloading,” where tech giants utilize synthetic leases and complex partnerships to keep massive capital expenditures off their books. By leasing computing power from smaller upstarts or utilizing special-purpose vehicles (SPVs), these companies push the financial risk onto lesser-known entities and their lenders.
This financial engineering has created a two-tiered market. While the “Hyperscalers” protect their credit ratings, the physical infrastructure is increasingly owned by private developers and financed by alternative lenders. However, cracks are appearing in the public perception of this debt. Credit default swaps (CDS) for major players like Oracle have spiked to multi-year highs, and the Bank of England has issued warnings regarding the potential for a debt-fueled asset bubble if valuations correct.
The “Bond Capital” Perspecitve: Disciplined Expansion
The current market state is defined by a dichotomy: aggressive spending meets wary creditors. When borrowers seek loan-to-value ratios exceeding 100%—justified by projected future rents rather than current cash flow—disciplined capital must draw a line. We are witnessing a classic “Risk-On” frenzy where the fear of missing out is temporarily overriding credit fundamentals.
For the astute borrower, this environment underscores the necessity of flexible, reality-based capital. While public markets oscillate between euphoria and fear regarding AI valuations, private credit remains focused on the tangible asset value. Bond Capital understands that the “AI Revolution” is, at this stage, a construction project. We look past the speculative valuations of the software to the foundational value of the infrastructure. In a market clouded by hype and synthetic structuring, we continue to provide certainty to borrowers who can demonstrate solid business fundamentals and real assets, rather than just a compelling pitch deck.
