AI’s US$5 tril data-centre boom will dip into every debt market — JPMorgan.
The furious push by AI hyperscalers to build out data centres will need about US$1.5 trillion (RM6.24 trillion) of investment-grade bonds over the next five years and extensive funding from every other corner of the market, according to an analysis by JPMorgan Chase & Co.
“The question is not ‘which market will finance the AI boom?’ Rather, the question is ‘how will financings be structured to access every capital market?’” according to strategists led by Tarek Hamid.
Leveraged finance is primed to provide around US$150 billion over the next half decade, they said. Even with funding from the investment-grade and high-yield bond markets, as well as up to US$40 billion per year in data-centre securitisations, it will still be insufficient to meet demand, the strategists added. Private credit and governments could help cover a remaining US$1.4 trillion funding gap, the report estimates.
The bank calculates at least a US$5 trillion tab that could climb as high as US$7 trillion, singlehandedly driving a reacceleration in growth in the bond and syndicated loan markets, the strategists wrote in a report Monday (Nov 10).
The analysts project US$300 billion in high-grade bonds going toward AI data centres next year. That could account for nearly one-fifth of total issuance in that market, which a report from Barclays Plc estimates will grow to US$1.6 trillion.
Data centre demand — which the analysts said will be limited only by physical constraints like computing resources, real estate and energy — has gone parabolic in recent months, defying some market-watchers’ fears of a bubble. A US$30 billion bond sale by Meta Platforms Inc last month set a record for the largest order book in the history of the high-grade bond market and investors were ready to fork over another US$18 billion to Oracle Corp last week to fund a data centre campus.
Despite the eye-popping sums the analysts estimated will be necessary to fund the next half-decade of expansion, they warned the path forward will not simply be “up and to the right.” Their biggest fear would be a repeat of the bubble that formed around telecom and fibre-optic networks in the late 1990s and early 2000s, when overcapacity led to a wave of defaults and a collapse in many sky-high valuations.
Source: Theedgemalaysia
