AI construction crunch widens credit fault lines
QQQ•Investors are demanding more protection
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.
