The artificial intelligence sector has seen a significant shift, with major tech firms increasingly relying on debt to fuel their expansion. Initially funded by cash reserves, the AI boom is now seeing companies take on substantial debt to finance data centres and infrastructure. This surge in borrowing is evidenced by the $1.7 trillion in investment-grade bonds sold by US companies this year, a figure nearing the 2020 record.
JPMorgan estimates that the AI sector will need $1.5 trillion in debt by 2028, with infrastructure spending potentially reaching $5-7 trillion by the end of the decade. Companies are also creating special purpose vehicles (SPVs) to manage AI-related debt, shifting it off their balance sheets. Concerns are rising about the sustainability of these investments and whether the returns will justify the debt incurred.
Experts warn that the rapid expansion and creative financing methods could lead to a financial crisis if revenue from AI applications doesn't materialize as expected. The Bank of England has also cautioned that AI valuations are stretched, drawing parallels to the dot-com bubble. The increasing reliance on debt raises questions about the long-term stability of the AI boom.
