Delivery represents a bigger concern than demand. Delays in obtaining microchips and local permits are pushing projected data center revenue further out. Public opposition and political wrangling make waits longer, too. A pause on new grid connections in Texas alone puts nearly 50 gigawatts of proposed projects, about a fifth of the U.S. pipeline, at risk of delay, according to BloombergNEF.
Even safer borrowers encounter signs of resistance. Bonds issued by Alphabet GOOGL.O, Amazon.com AMZN.O, Meta META.O, Microsoft MSFT.O and Oracle ORCL.N now trade at premiums to similarly rated non-AI credit. Orders for their debt dropped from nearly five times the amount on offer in February to less than two times in July, according to Torsten Slok, chief economist for lender and buyout shop Apollo Global Management.
Higher yields are only part of the new safeguards. CyrusOne, a data-center developer owned by private equity firm KKR KKR.N and BlackRock’s BLK.N Global Infrastructure Partners, secured some $10 billion of financing in August, but cannot tap the portion intended for new construction until permits have been secured and leases signed. A Louisiana project backed by Meta earned an A+ credit rating, partly because Mark Zuckerberg's social-media giant promised to cover shortfalls in the site's value for 16 years if it walks away. Chipmaker Nvidia NVDA.O recently provided a similar backstop for OpenAI's campus in Ohio.
Collateral is sometimes not enough to allay concerns either. To expand its Helios campus for AI cloud provider CoreWeave CRWV.O, Galaxy Digital sold $3.5 billion of riskier BB-minus bonds in July at a roughly 10% yield, about three percentage points higher than the U.S. high-yield index, despite pledging the project’s assets as security.
Longer-dated debt also faces concentration risks. Insurers, big buyers of such bonds, have already swallowed significant amounts. With data-center spending expected to approach $3 trillion through 2028, according to Morgan Stanley analysts, financing that follows the tempo of construction makes more sense. Private equity and infrastructure funds are helping, but the initial AI infatuation is officially over.
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