Investors are souring on AI debt

Is this the start of the AI bubble bursting? Bonds backing some of the largest data centers have fallen well below the value they were issued at, signaling investor fears that big AI projects won’t make money fast enough to repay the USD tns being borrowed to build out AI capacity.

Details as of late last week: Bonds for Meta’s “Hyperion” data center traded above face value in early July. They’re now worth about 91 cents for every USD lent. Bonds for two data centers built by Hut 8, one in Louisiana and one in Texas that Nvidia rents, have fallen to around 93 and 91 cents. Bonds for a Microsoft-leased data center in Georgia, owned by Blackstone’s QTS, are under 87 cents.

It’s worst for the neoclouds, providers of AI-first cloud infrastructure: CoreWeave, the best known of the group, saw its shares drop almost 25% in a week. Rival Nebius dropped 12% on Friday alone. Even Nvidia, which has invested USD bns in neoclouds including CoreWeave and Nebius, lost about USD 270 bn in market value in a week.

The takeaway: “Data center bonds are having their Darwin moment, where the weakest credits struggle to survive,” Allianz CIO Ludovic Subran told the Financial Times. Here’s more from EnterpriseAM UAE.

So, is there a bubble? It’s the question of the year — and it depends on how you define “bubble.” The New York Times’ Ezra Klein has a debate worth listening to (listen or watch, runtime: 1:06:54).