Artificial intelligence, real debt

AI isn’t just eating compute power—it’s eating the credit markets, too.

As hyperscalers race to build data centers, lenders are enjoying a wave of demand from companies scrambling to finance the AI buildout. “The big companies have only just started dipping their toes into the credit markets…feels like there’s a lot more they can do there,” Ben Powell, chief investment strategist for APAC at BlackRock, told CNBC. 

Translation: The borrowing spree has barely begun.

Powell argued that the real winners are the “picks and shovels” players powering the AI bubble, especially energy suppliers. Global data-center growth could require an extra 90 GW of power by 2030. That’s like adding three New York Cities to the US grid, according to Apollo, with each gigawatt demanding about $50 billion in infrastructure spending.

The risk beneath the rally

But below the surface, there’s growing concern about how risk is being priced.

Some pros warn that investors are getting a little too comfortable with credit ratings. PIMCO CIO Dan Ivascyn put it bluntly: “It is very, very dangerous to assume something has an investment-grade rating just because the rating agencies assign a rating to it.” He suggests investors stop outsourcing risk assessment to third-party graders, calling today’s behavior similar to the same sort of complacency the credit market had before the Great Financial Crisis.

Those ratings may already be stretched. Ivascyn said that in many cases, a borrower earns an investment-grade label from only one agency—often a sign that the others see it as below IG.

Looking ahead

Nobody wants to look a gift horse in the mouth, and investors are encouraging private credit firms to be aggressive in order to capitalize on the AI boom. But that aggression can have a darker side, particularly if creditors are loaning money to borrowers that aren’t as financially sound as they seem.

How this all plays out ultimately hinges on the macro environment. Right now, the risk feels contained: default rates are relatively low, economic growth is strong amid heavy AI investment, and the Fed is widely expected to cut rates this week.

But if the economy weakens, things could look a lot different for the booming credit market—and the rest of the financial ecosystem.—SY