Surging bond yields and credit default swap rates are driving up the cost of funding critical data center infrastructure, impacting major firms like Nvidia and CoreWeave. Goldman Sachs reports that political friction could stall 45% of planned U.S. capacity, particularly in key states like Texas where moratoriums have been proposed. Nevertheless, overall AI debt issuance remains massive, with hyperscalers projected to issue $440 billion in new debt next year.
Key points
Rising default insurance costs across major tech leaders indicate higher broad borrowing…: Rising default insurance costs across major tech leaders indicate higher broad borrowing expenses for future artificial intelligence projects.
Hyperscalers generated negative free cash flow in the third quarter because high capital…: Hyperscalers generated negative free cash flow in the third quarter because high capital expenditures outpaced their operating cash.
Bank of America expects total AI-related debt issuance to reach a high of $685 billion in…: Bank of America expects total AI-related debt issuance to reach a high of $685 billion in 2027 before declining.
Sources checked by our analysis pipeline: 1
Debt markets are sending a message to AI data center builders: we're hiking the interest rate on your credit card and may put some new curbs on your credit limit.
That analogy comes courtesy of Jefferies global head of equity strategy, Christopher Wood, who put it in a note on Friday: "The most plausible way the AI capex arms race will end is that the credit card will be taken away."
That isn't happening yet, but credit markets have been spooked by the new political landscape — seeing more hurdles to data centers under Democratic governors in key states, along with a Democratic-controlled Congress.
The poster child for debt stress is neocloud Coreweave. The yield on its 2032 bond with a 9.625% coupon has climbed above 16%. Corweave's five-year credit default swaps spiked above 1,289 basis points on Thursday, widening above their October peak, according to Deutsche Bank. The CDS eased 8% Friday to around 1,155.
"We've had plenty of warnings from the credit space," said Jim Reid, Deutsche Bank's global head of macro and thematic research, in a note…
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