FT: Investors Dump Data Centre Bonds as AI Borrowers Face ‘Darwin Moment’
Bond yields are spiking as investors question data-centre valuations, and listings for AirTrunk, Firmus and SB Energy have been pulled or paused.
- Amid weakening AI-related stocks, investors paused or pulled listings for Blackstone-backed AirTrunk Reit, Nvidia-backed Firmus, and SoftBank-backed SB Energy this past week.
- Benchmark 10-year US Treasury yields posted their sharpest quarterly rise this century in September, forcing companies to offer higher returns as data-center operators spend massive sums on infrastructure before generating revenue.
- Credit default swap spreads for CoreWeave reached a record 1,195 basis points, while Oracle's notes due in 2032 yielded 7.24% on Wednesday; Nvidia CEO Jensen Huang intervened to reassure lenders of the company's "financial strength is improving every day."
- Asian data-center mergers reached a record $21.3 billion through October 13, yet nuclear services company Holtec cited a "perfect storm" of uncertainty around data-centre demand when it pulled its US listing last month.
- The sector's conversation has shifted from "growth at any cost" to a focus on quality, said Harry Evans, a partner at law firm Freshfields, who expects deal activity to hold up through next year due to a strong pipeline.
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Investors are beginning to question whether the AI boom will generate enough money to pay off the huge debts that finance the construction of data centers. Bond prices linked to some major U.S. projects are plummeting.
Data center bonds that finance artificial intelligence infrastructure have plunged in recent weeks as investors increasingly doubt that the revenues from the AI boom will be able to cover the huge debt piles that have accumulated. Analysts say the sector is experiencing its Darwinian moment, the Financial Times reports.
Major financial institutions are seeking to get rid of the debts associated with the AI data centres they have granted. The concern is growing in Wall Street, as the debt that accumulates to finance data centres and chips seems increasingly disconnected from economic reality. The AI industry is expected to spend $7,000 billion in infrastructure by 2030, but companies will generate no more than $3,600 billion in revenue.
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