Data center bonds fall as investors fear AI debt will not pay off

Investors are dumping bonds that finance data centers for artificial intelligence en masse. According to a British business newspaper, securities tied to projects whose tenants are expected to be Meta, Nvidia, Oracle and Microsoft are under pressure, as is the debt of so-called neoclouds — companies that run computing infrastructure primarily for AI.

The best-known example is CoreWeave, which is backed by Nvidia. Its bonds have fallen below 80% of face value, a level the market usually treats as a sign of distressed debt. On Thursday the yield approached 15%. CoreWeave shares lost 17% over the week, and those of its rival Nebius dropped 18%. “Data center bonds are having their Darwinian moment, with the weakest borrowers fighting for survival,” said Ludovic Subran, chief investment officer at Germany's Allianz. In his view, the rise in risk premiums after delays in construction and power connections shows that investors previously underestimated the execution risks of such projects.

Huge investments will not pay off

Anxiety grew after the AI developer OpenAI postponed its stock market listing until next year and quarterly revenue growth slowed at its rival Anthropic. Analysts point to a widening gap between the money poured into infrastructure and the revenue AI is expected to generate in the coming years.

This week the consulting firm Gartner estimated that operators of AI data centers would need revenue of $8.5 trillion (about CZK 185 trillion) by the end of 2030 to cover investment and financing costs and reach a healthy return. By Gartner's estimate, spending by companies and consumers on AI services, which could ultimately flow to operators, will reach no more than $3.6 trillion (about CZK 78 trillion). The gap is enormous. If the current pace of investment in AI infrastructure continues, assets worth more than $4 trillion (about CZK 87 trillion) could be at risk of write-offs by 2032. In addition, up to 80% of neocloud companies will cease to exist as independent businesses by 2030.

Big players have problems too

The difficulties are not limited to small providers of computing capacity. Bonds issued by Blue Owl and an investment vehicle backed by Meta to finance the Hyperion project have fallen since early July from above face value to below 92%. Bonds for two Hut 8 projects in Louisiana and Texas have dropped to about 94% and 92% of face value; the Texas project is to be used by Nvidia. Project Excalibur, a QTS data center in the US state of Georgia owned by a Blackstone fund and leased by Microsoft, has slumped even more: its bonds trade below 88% of face value.

Loans of about $18 billion (about CZK 391 billion) tied to Oracle's Project Jupiter data center in New Mexico have also entered the danger zone. The project was delayed in obtaining a permit for power supplies because of resistance from local residents.

Nvidia loses almost six trillion crowns

The nervousness has spread to stocks as well. Nvidia, which has invested tens of billions of dollars in neocloud companies and other AI projects, lost about $270 billion in market value over the past week (about CZK 5.9 trillion). Company chief Jensen Huang dismissed concerns that CoreWeave needs a financial rescue from a major investor: “I'm an optimist. Their cost of capital is actually falling,” he said. According to him, the company's financial position is improving every day.

Investors are also worried about the cross-financing among players in the industry, where customers and suppliers fund one another. The Bank for International Settlements, according to a source, has warned that a significant part of financial and business relationships in AI are interconnected.

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Around Prague, based on reporting by novinky.cz