Insuring the boom: The missing piece of the AI infrastructure puzzle

Building out the AI boom is one thing, but insuring it is another — and it’s making lending in the sector more challenging. Lenders looking to fund multi-bn-USD, multi-GW AI projects are struggling to secure enough ins., the Financial Times reports. Blackstone and KKR are among those opting out of taking on AI-linked debt on the grounds of a lack of comprehensive coverage, the salmon-colored paper said.

The risks: Data centers are vulnerable to a host of events, from natural disasters to possible disruptions to water and energy supplies. A 45-minute power outage alone could wipe out half a year’s revenues, Parametrix’s Jonathan Hatzor said. This, coupled with a lack of ins. coverage, is positioning funding data centers at a level of exposure that many investors are wary of taking on, especially as the lack of full coverage may become an issue when construction loans are set to be refinanced.

Some developers have been trying to mitigate the risks, building out data centers in areas with more temperate weather patterns, but, as we’re all too aware in our neck of the woods, it’s hard to mitigate against geopolitical risks.

Hyperscalers aren’t helping, with huge investments and large-scale projects driving up ins. costs. Megaprojects are often some of the most underinsured, Kirkland & Ellis partner Kimberly McGrath said. Meanwhile, Marsh broker Kate Fairhead noted that these projects distort the market by taking on more risk on their balance sheet.

Current ins. mechanisms in place for under-construction projects are offering partial coverage. Meta’s USD 30 bn data center campus in Louisiana has about USD 4 bn worth of coverage, Clifford Chance’s Gianluca Bacchiocchi said. However, when it comes to high-profile projects with a lot of investor interest, potential backers have to accept a certain level of risk if they want to be involved.

The coverage conundrum isn’t the only worry plaguing the sector, with fears continuing to spiral around a possible AI bubble. Key AI firms have seen valuations surge, and investors have been throwing money at projects that have yet to deliver equivalent returns. Only 10% of agentic AI projects are seeing measurable returns, according to Deloitte. The IMF has also recently warned of growing AI investments, echoing the dot-com boom of the late 1990s. Despite this, Nvidia has recently posted revenues that beat expectations, assuaging doubts somewhat.

MARKETS THIS MORNING-

Asia-Pacific markets were mostly in the green in early trading this morning as investors await the Federal Reserve’s decision later today — the central bank is widely expected to leave interest rates as they are. Similarly, US stocks are set to open in the green later today, with futures a sea of green.

The values in the table above are listed according to the market position as of 3:30pm IST / 2pm GST.