The cost of financing for technology giants racing to build artificial intelligence infrastructure is climbing.
A data center project in Texas, backed by Meta Platforms, Inc. (META), completed a $12.55 billion bond sale this week. However, the yield on this new debt was about 50 basis points higher than a similar transaction last year, reaching approximately 7.5%. As the market's capacity to absorb AI-related debt nears its limit, investors are demanding a higher risk premium, revealing the growing capital strain behind the AI construction boom.
Meta Platforms, Inc. executives have communicated to bankers and fund managers that the company may need to raise hundreds of billions of dollars in the future to support AI infrastructure. They are in discussions with institutions like Blackstone about further financing. According to reports, NVIDIA is also in talks with OpenAI to potentially provide around $250 billion in guarantees to help finance a large data center project in Ohio.
Data from Bank of America Global Research shows that new bond issuance from AI-related companies reached $270 billion by early July this year, nearly double the total financing volume for all of 2025. As tech giants continue to expand their AI capital expenditure, the market's focus is shifting from "whether to provide funding" to "what level of return is required to attract capital."
Interest Rates Rise, Putting Pressure on New Bond Pricing
On Monday, the data center project in El Paso, Texas, backed by Meta Platforms, Inc., completed a $12.55 billion note issuance. The project is about 80% equity-owned by a BlackRock fund. The bonds issued by the holding company, Sopaipilla Investor, have a coupon spread of 275 basis points over the 10-year Treasury yield, translating to an actual yield of about 7.5%. The notes, maturing in 2048, were jointly underwritten by Morgan Stanley and JPMorgan Chase.
In comparison, existing bonds from a similar Meta Platforms, Inc. project in Louisiana were trading at a spread about 50 basis points lower than this new issue. This pricing difference between the primary and secondary markets indicates that investors are reassessing the risk premium for AI infrastructure financing and demanding higher returns to absorb the growing supply of new debt.
"No one expects the construction to stop, but the cost of financing is rising," said Neha Khoda, head of credit strategy at Bank of America.
Previously, Alphabet's announcement of aggressive capital expenditure plans put pressure on the tech sector, which then spilled over to corporate bonds of companies like Microsoft and Amazon, heightening concerns about AI-related capital spending and the associated financing pressures.
Betting on Off-Balance-Sheet Financing to Reduce Balance Sheet Strain
Over the past nine months, Meta Platforms, Inc. has significantly accelerated its financing pace and actively utilized off-balance-sheet structures to alleviate pressure on its own balance sheet.
In October last year, Meta Platforms, Inc. completed a $30 billion corporate bond issuance, nearly doubling its total debt. It then issued another $25 billion in bonds in April this year, continuing to ramp up financing.
The financing structure for the latest Texas data center project is highly similar to the Hyperion project in Louisiana. That project, also backed by Meta Platforms, Inc., was developed in partnership with Blue Owl Capital, whose funds invested about $3 billion for an 80% stake. The holding company, Beignet Investor, issued $27 billion in bonds to finance a data center cluster of approximately 2 gigawatts.
Both transactions incorporate a "residual value guarantee" mechanism. If Meta Platforms, Inc. does not renew its lease or terminates it early, bondholders are still protected regarding principal and interest. Thanks to this structure, the bonds received investment-grade ratings, with the Sopaipilla project rated A+ by S&P and AA- by Fitch.
The market is also beginning to focus on the risk transfer in these structures. While project financing does not appear on the tech giants' balance sheets, the ultimate repayment still heavily depends on the demand for AI computing power and the stability of Meta Platforms, Inc.'s long-term lease commitments. As off-balance-sheet financing becomes more common, its implicit liabilities and credit transmission effects are becoming key variables in assessing the financial resilience of technology companies.
AI Capital Race Pushes Up Financing Costs
Wall Street bankers have indicated to clients that the possibility of a significant decline in financing rates in the short term is limited, which is forcing large AI companies to reassess the cost of infrastructure expansion.
Just as surging demand for chips, energy, and building materials has driven up data center construction costs, the concentrated demand for capital from AI companies is also pushing up financing prices. However, in this computing power race, companies find it difficult to choose to wait. For those vying to secure an advantage in AI infrastructure, financing at a higher cost is still preferable to delaying construction due to a lack of funds.
The market is entering a new phase. The investment fever in AI infrastructure has not cooled, but the capital market is beginning to demand higher returns. A vast amount of money will still flow into data centers and computing power construction, but tech giants will have to pay increasingly higher financing costs to compete in this race.
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