AI Debt Boom Fuels Data Center Growth, Risks Loom

Global stock markets are riding a wave of AI enthusiasm, reaching record highs. Yet, behind the boom, the data centers powering this revolution are being financed with increasingly complex debt structures, drawing scrutiny from investors wary of hidden risks.

Unlike past tech bubbles, this AI-driven surge is supported by profitable companies with strong balance sheets. Still, regulators and economists warn that certain corners of the financial system are showing stress signs, especially where illiquid and opaque assets are involved.

Record Investment-Grade Borrowing

Data from Bank of America shows U.S. AI-focused Big Tech companies issued $75 billion in investment-grade debt in just September and October—more than double the sector’s average annual issuance of $32 billion between 2015 and 2024.

Meta led the pack with $30 billion, followed by Oracle with $18 billion. Alphabet has also announced new borrowing, and Oracle’s $38 billion high-grade loan tied to Vantage data centers underscores the scale of financing.

Even with these large issuances, AI debt accounts for only 5% of the $1.5 trillion U.S. investment-grade debt market in 2025. Yet analysts at Barclays note AI-related borrowing could shape credit market supply trends through 2026.

Hybrid structures are also emerging. For instance, Meta’s $27 billion data center deal with Blue Owl Capital keeps the debt off its balance sheet, reflecting innovative financing approaches in the sector.

Oracle Shares Soar Amid Debt Concerns

Oracle’s shares have jumped 54% in 2025, marking its strongest rally since 1999, driven by AI-enabled revenue growth. Yet a sharp rise in its credit default swaps—insurance against default—signals investor caution over its debt levels.

High-Yield Bonds Enter the AI Space

AI-focused companies are increasingly tapping the high-yield bond market. TeraWulf, a bitcoin miner turned data center operator, issued a $3.2 billion BB- rated bond, while Nvidia-backed CoreWeave raised $2 billion in high-yield debt.

Such instruments offer high returns but carry greater default risk, highlighting the trade-off investors face in financing AI infrastructure.

Private Credit Gains Ground

Private credit is playing an ever-larger role in AI funding. UBS estimates AI-related private loans nearly doubled in the year through early 2025. These loans are flexible but harder to trade in volatile markets, raising potential systemic risks.

Morgan Stanley projects private credit could supply over half of the $1.5 trillion needed for U.S. data center expansion through 2028.

Asset-Backed Securities Join the Race

Securitized products, like asset-backed securities (ABS), are also financing AI growth. These instruments bundle illiquid assets, such as rental income from data centers, into tradable securities.

Though digital infrastructure accounts for only $80 billion—roughly 5% of the $1.6 trillion U.S. ABS market—it has grown eightfold in under five years. BofA reports that 64% of this segment is backed by data centers, with projections reaching $115 billion by next year.

While ABS are standard financial tools, their complexity and illiquidity recall cautionary tales from the 2008 financial crisis.

The Bottom Line

The AI boom is driving unprecedented investment in data infrastructure, powered by diverse financing channels—from investment-grade bonds and high-yield debt to private credit and ABS. Yet the intricate web of complex loans and illiquid assets means investors are watching closely, aware that rapid growth comes with hidden financial risks.