5 Debt Hotspots in the AI ​​Data Center Boom

Written by Lucy Raitano and Amanda Cooper

LONDON (Reuters) – The AI ​​craze is sending global stock prices to record highs, but the data centers needed to power the promised revolution are increasingly being financed with complex debt and investors are on the lookout for signs of a bubble.

Enthusiasts say that unlike previous episodes of market mania (such as the dot-com boom of the late 1990s), this one is being driven by companies that are profitable, well-funded and have an undeniable business case.

But now some observers, including the Bank of England, say risks are building up in parts of the financial system that are concentrated in illiquid assets that are opaque and difficult to trade.

Here are five charts that tell the new story of debt financing in the AI ​​space race.

1) AI investment-grade borrowing is on the rise

According to BofA data, $75 billion of U.S. investment-grade debt issued by AI-focused Big Tech companies entered the market in September and October alone, more than double the sector’s average annual issuance of $32 billion from 2015 to 2024.

The total includes $30 billion from Meta and $18 billion from Oracle. Add to that the new debt Google owner Alphabet announced on Monday, or the $38 billion in highly rated financing tied to Oracle’s Vantage data centers that Bloomberg recently reported.

The $75 billion in trade in September and October represents just 5% of the $1.5 trillion in U.S. investment-grade bond issuance so far this year.

But Barclays says AI-related high-tech bond issuance will be a key factor in determining potential credit market supply in 2026.

Debt also takes a hybrid form.

For example, Meta agreed to $27 billion in financing with Blue Owl Capital for its largest data center project, adopting a complex structure that keeps debt off its books.

JPMorgan estimates that AI companies make up 14% of its investment-grade index, outpacing U.S. banks as the leading sector.

2) Oracle: Outstanding Stock, Growing Credit Risk

Oracle stock is poised to soar 54% in 2025, the strongest annual gain since 1999. The company has become one of Wall Street’s most valuable companies due to its AI-driven revenue surge.

But the proliferation of credit default swaps, which are insurance against default for bondholders, shows investors are concerned about debt levels at U.S. tech giants.

3) Increase in AI-related “junk” bonds

AI-related issuance is also starting to appear in the high-yield, or “junk” bond market, where default risk is high but returns are high.

Last month, Bitcoin miner turned data center operator TeraWulf issued $3.2 billion in high-yield bonds rated BB- by S&P Global, while Nvidia-backed AI cloud provider CoreWeave issued $2 billion in high-yield bonds in May.

4) Increasing role of private credit in AI financing

Fast-growing private credit, which is provided to companies by entities such as investment firms rather than banks, is also increasing funding for AI data centers, UBS said.

The bank estimates that private credit AI-related lending could have nearly doubled in the 12 months to early 2025.

Although such loans are more flexible, they can be difficult to trade during market turbulence, causing further stress in financial markets.

Morgan Stanley estimates that private credit markets could provide more than half of the $1.5 trillion needed to build data centers by 2028.

5) ABS modification?

Securitized products such as asset-backed securities (ABS) can also help fund the growth of the AI ​​industry, according to Morgan Stanley. These are illiquid assets such as loans, credit card debt, or, in the context of AI, rent paid by Big Tech tenants to data center owners, packaged into tradable securities.

Digital infrastructure accounts for only 5%, or $80 billion, of the roughly $1.6 trillion U.S. ABS market, but BofA notes that the market has expanded more than eight times in less than five years. The company estimates that 64% of that market is supported by data centers, and expects the market to reach $115 billion by the end of next year, driven largely by data center construction.

Although ABS is a standard financial product, it has been viewed with some degree of caution since the 2008 financial crisis, when billions of dollars worth of products were found to be backed by failed loans and highly illiquid and complex assets.

(Reporting by Lucy Raitano; Editing by Tomasz Janowski)