The Shift from Equity Hype to Credit Reality
For the past two years, the Artificial Intelligence narrative has been dominated by equity valuations and software capabilities. As we close 2025, the story has fundamentally shifted to the balance sheet. The physical build-out of the “AI factory”—comprising data centers, energy grids, and fiber networks—is carrying a projected price tag of between $5 trillion and $7 trillion, according to recent analysis by JPMorgan Chase. The capital markets are no longer just cheering for innovation; they are straining under the weight of financing it.
New data from UBS reveals a staggering acceleration in project finance: AI-related deals have surged to $125 billion year-to-date, up from a mere $15 billion during the same period in 2024. While the equity markets celebrate the technological revolution, the credit markets are tasked with pouring the concrete. This disconnect creates a distinct environment of “Risk-On” spending masked by “Risk-Off” structuring, as major players race to secure flexible capital without breaking their own leverage ratios.
The Private Credit Migration
With traditional lenders growing wary of concentration risk and regulatory scrutiny, the financing burden is migrating aggressively toward private markets. Morgan Stanley now estimates that private credit could supply over half of the $1.5 trillion needed specifically for data center construction through 2028. This represents a structural change in how critical infrastructure is funded in North America.
We are observing a bifurcated market:
- Investment Grade Giants: Companies like Oracle and Meta are tapping public debt markets for record sums ($18 billion and $30 billion respectively), though not without cost. Oracle’s credit default swaps (CDS)—insurance against default—recently spiked to levels not seen since 2009, signaling investor unease with the sheer scale of capital expenditure.
- The “Off-Balance Sheet” Maneuver: To protect their credit ratings, hyperscalers are increasingly utilizing synthetic leases and circular financing structures. These mechanisms transfer the asset—and the risk—to smaller partners and private lenders, creating opportunities for agile capital providers but obscuring the true leverage in the system.
Bond Capital Perspective: Discipline Amidst the Gold Rush
The current market environment is exhibiting signs of “irrational exuberance” in debt structuring. Reports indicate some borrowers are now requesting loans covering up to 150% of construction costs, justifying these requests based on future valuation uplifts rather than current asset value. This is a classic hallmark of a frothy market.
At Bond Capital, we distinguish between funding innovation and funding speculation. While we recognize the generational necessity of this infrastructure build-out, we maintain that debt must be secured by fundamental asset value—steel, concrete, and signed leases—not theoretical future equity multiples.
For borrowers in the infrastructure and technology services sectors, the implications are clear: Public markets are becoming crowded and increasingly sensitive to capex blowouts. Private credit offers the necessary certainty of execution, but the highest quality partners will demand discipline. We remain committed to financing the tangible economy, providing structure and stability while others chase valuation ghosts.
