What happened
Morgan Stanley and JPMorgan have substantially increased debt financing for AI infrastructure, with Morgan Stanley leading or co-leading approximately $65 billion in corporate bond deals for data centres and AI investments since October. This activity has propelled AI-linked firms to constitute around 14% of JPMorgan's investment-grade index, exceeding US banks. The AI sector is projected to require trillions in bonds for data centre construction, with private credit markets potentially supplying over 50% of the $1.5 trillion needed for data centre build-out through 2028. Asset-backed securities, bundling illiquid assets like loans and data centre rents, are also emerging as a funding mechanism.
Why it matters
The substantial increase in debt financing for AI infrastructure, including significant private credit and asset-backed securities, introduces a heightened financial exposure for organisations investing in or relying on AI. This shift raises due diligence requirements for finance and risk management teams to assess the stability and long-term viability of AI-linked investments and their underlying assets. The expanded use of less transparent funding mechanisms, such as bundled illiquid assets, increases the oversight burden on compliance and procurement departments to ensure financial prudence and regulatory adherence in AI infrastructure development.
