Financial Times: Data center bonds are being sold off, AI borrowers are under pressure

According to the Financial Times, investor confidence in whether the artificial intelligence boom can generate enough revenue to support the massive debts of data centers is weakening, leading to a significant drop in the financing bond prices of some large data center projects in the United States. Some bonds that provide funding for data center construction for companies like Meta, Nvidia, and Oracle have fallen below par value. For example, the bonds of CoreWeave, a cloud computing infrastructure provider invested in by Nvidia, have dropped to below 80 cents on the dollar, reaching levels typically considered distressed bonds, with yields nearing 15% on Thursday. The company's stock price fell 17% this week, while competitor Nebius dropped 18%, and Nvidia's market value evaporated by about $270 billion over the past week.

Ludovic Subran, Chief Investment Officer of Allianz Group, stated that data center bonds are entering a "Darwinian moment," where projects with weaker credit quality will face survival challenges. He noted that power supply issues and construction delays have led to widening credit spreads, reflecting that the market had previously been overly optimistic in pricing the execution risks of data center debt. The core concern in the market is the significant gap between the scale of AI infrastructure investment and future revenues. OpenAI has postponed its IPO until next year, and Anthropic's quarterly sales growth has slowed, exacerbating doubts about the sustainability of growth in the AI industry.

Research firm Gartner predicts that by 2030, 80% of new cloud service providers may not be able to continue operating independently. It estimates that AI data center owners will need to achieve $8.5 trillion in revenue by the end of 2030 to cover capital and financing costs and achieve reasonable returns, but consumer and enterprise spending on AI services is expected to reach only $3.6 trillion at most, indicating that over $4 trillion in assets may face impairment risks by 2032. In some areas of the United States, restrictions have been tightened due to issues related to water usage, noise, and air pollution from data centers, and delays in power supply approvals have further hindered project progress. Investors remain cautious about the circular financing model where clients and suppliers within the industry finance each other. Nvidia CEO Jensen Huang stated on Thursday that he believes CoreWeave does not need Nvidia to provide backstop support and mentioned that the company's capital costs are decreasing and operational strength is continuously improving.